IMPERIAL CREDIT MORTGAGE HOLDINGS INC
S-11/A, 1996-11-04
MORTGAGE BANKERS & LOAN CORRESPONDENTS
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<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1996     
                                                   
                                                REGISTRATION NO. 333-14873     
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                ---------------
                                
                             AMENDMENT NO. 1     
                                       
                                    TO     
                                   FORM S-11
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                                ---------------
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                ---------------
 
                              20371 IRVINE AVENUE
                      SANTA ANA HEIGHTS, CALIFORNIA 92707
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                              JOSEPH R. TOMKINSON
                            CHIEF EXECUTIVE OFFICER
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
                              20371 IRVINE AVENUE
                      SANTA ANA HEIGHTS, CALIFORNIA 92707
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                  INCLUDING AREA CODE, OF AGENT FOR SERVICE)
 
                                ---------------
 
                                  COPIES TO:
 
       THOMAS J. POLETTI, ESQ.                     JUDITH R. THOYER, ESQ.
       KATHERINE J. BLAIR, ESQ.                    PAUL, WEISS, RIFKIND,
        DARREN O. BIGBY, ESQ.                        WHARTON & GARRISON
     FRESHMAN, MARANTZ, ORLANSKI,               1285 AVENUE OF THE AMERICAS
            COOPER & KLEIN                     NEW YORK, NEW YORK 10019-6064
  9100 WILSHIRE BOULEVARD, 8TH FLOOR             TELEPHONE: (212) 373-3000
   BEVERLY HILLS, CALIFORNIA 90212               FACSIMILE: (212) 757-3990
      TELEPHONE: (310) 273-1870
      FACSIMILE: (310) 274-8357
 
                                ---------------
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
 
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
                                ---------------
       
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+SUCH STATE.                                                                   +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
 
                             SUBJECT TO COMPLETION
                  
               PRELIMINARY PROSPECTUS DATED NOVEMBER 4, 1996     
 
                                2,500,000 SHARES
 
 
               [LOGO OF IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.]
                                  COMMON STOCK
 
                                  -----------
   
  All of the shares of Common Stock offered hereby are being sold by Imperial
Credit Mortgage Holdings, Inc. (the "Company"). The Common Stock is listed on
the American Stock Exchange (the "AMEX") under the symbol "IMH". On October 31,
1996, the last reported sale price of the Common Stock as reported by the AMEX
was $21.75 per share. See "Price Range of Common Stock."     
 
  SEE "RISK FACTORS" STARTING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
 
                                  -----------
 
THESE  SECURITIES HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE SECURITIES  AND
 EXCHANGE   COMMISSION  OR  ANY  STATE  SECURITIES  COMMISSION  NOR  HAS   THE
  SECURITIES  AND  EXCHANGE COMMISSION  OR  ANY STATE  SECURITIES  COMMISSION
   PASSED   UPON  THE  ACCURACY   OR  ADEQUACY   OF  THIS  PROSPECTUS.   ANY
    REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                              Price   Underwriting    Proceeds
                                                to   Discounts and       to
                                              Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S>                                           <C>    <C>             <C>
Per Share...........................            $         $             $
- --------------------------------------------------------------------------------
Total........................................ $          $             $
- --------------------------------------------------------------------------------
Total Assuming Full Exercise of
 Over-Allotment Option (3)..........          $          $             $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting."
(2) Before deducting expenses estimated at $750,000 payable by the Company.
(3) Assuming exercise in full of the 45-day option granted by the Company to
    the Underwriters to purchase up to 375,000 additional shares, on the same
    terms, solely to cover over-allotments. See "Underwriting."
 
                                  -----------
 
  The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject any orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
    , 1996.
 
                                  -----------
 
PAINEWEBBER INCORPORATED

        OPPENHEIMER & CO., INC.

                   STIFEL, NICOLAUS & COMPANY
                         INCORPORATED
                                                        
                                                        EVEREN SECURITIES, INC.
 
                                  -----------
 
                  THE DATE OF THIS PROSPECTUS IS       , 1996
<PAGE>
 
                             AVAILABLE INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document referred as an exhibit to the Registration Statement. A copy
of the Registration Statement may be inspected without charge at the offices
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission.
 
  The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Commission.
The Registration Statement, including the exhibits and schedules thereto, as
well as such reports and other information filed by the Company with the
Commission, can be inspected, without charge, and copied at the public
reference facilities maintained by the Commission at the office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, and at
the following Regional Offices of the Commission: 7 World Trade Center, New
York, New York 10048, Suite 1300; and 500 West Madison Street, Chicago,
Illinois 60661, Suite 1400. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C, 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains a Website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the site is
http://www.sec.gov. Reports, proxy statements and other information concerning
the Company can be inspected at such Website and the American Stock Exchange,
Inc., 86 Trinity Place, New York, New York 10006.
 
 
  IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>
 
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and related notes
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. Unless the context otherwise requires, references
herein to the "Company" refer to Imperial Credit Mortgage Holdings, Inc.
("IMH"), ICI Funding Corporation ("ICIFC"), IMH Assets Corp. ("IMH Assets"),
and Imperial Warehouse Lending Group, Inc. ("IWLG"), collectively. Capitalized
and certain other terms used herein shall have the meanings assigned to them in
the Glossary.
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
 
                                  THE COMPANY
 
  Imperial Credit Mortgage Holdings, Inc. is a specialty finance company which,
together with its subsidiaries and related companies, operates three
businesses: (1) the Long-Term Investment Operations, (2) the Conduit
Operations, and (3) the Warehouse Lending Operations. The Long-Term Investment
Operations invests primarily in non-conforming residential mortgage loans and
securities backed by such loans. The Conduit Operations purchases and sells or
securitizes primarily non-conforming mortgage loans, and the Warehouse Lending
Operations provides warehouse and repurchase financing to originators of
mortgage loans. These latter two businesses include certain ongoing operations
contributed to the Company in 1995 by Imperial Credit Industries, Inc.
("ICII"), a leading specialty finance company (the "Contribution Transaction").
IMH is organized as a real estate investment trust ("REIT") for federal income
tax purposes, which generally allows it to pass through qualified income to
stockholders without federal income tax at the corporate level.
 
  Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests in
such loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Such loans generally provide higher yields than conforming loans. The principal
differences between conforming loans and non-conforming loans include the
applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the type
of properties securing the mortgage loans, the loan sizes, and the mortgagors'
occupancy status with respect to the mortgaged properties. Second mortgage
loans are higher yielding mortgage loans secured by a second lien on the
property and made to borrowers owning single-family homes for the purpose of
debt consolidation, home improvements, education and a variety of other
purposes. At September 30, 1996, the Company's mortgage loan and securities
investment portfolio consisted of $544.2 million of mortgage loans held in
trust as collateral for Collateralized Mortgage Obligations ("CMOs"), $47.9
million of mortgage-backed or other collateralized securities and $1.2 million
of mortgage loans held for investment.
 
  Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-Term
Investment Operations. ICIFC's ability to design non-conforming mortgage loans
which suit the needs of its correspondent loan originators and their borrowers
while providing sufficient credit quality to investors, as well as its
efficient loan purchasing process, flexible purchase commitment options and
competitive pricing, enable it to compete effectively with other non-conforming
mortgage loan conduits. In addition to earnings generated from ongoing
securitizations and sales to third party investors, ICIFC supports the Long-
Term Investment Operations of the Company by supplying IMH with non-conforming
mortgage loans and securities backed by such loans. For the
 
                                       3
<PAGE>
 
nine months ended September 30, 1996, ICIFC acquired $1.2 billion of mortgage
loans and sold or securitized $1.5 billion of mortgage loans. The Long-Term
Investment Operations acquired $591.0 million of such loans as well as $ 29.6
million of securities created by ICIFC. Prior to the Contribution Transaction,
ICIFC was a division or subsidiary of ICII since 1990. IMH owns 99% of the
economic interest in ICIFC, while ICII is the holder of all the outstanding
voting stock of ICIFC. At September 30, 1996, ICIFC maintained relationships
with 245 correspondents.
 
  Warehouse Lending Operations. The Warehouse Lending Operations, conducted by
IWLG, provides warehouse and repurchase financing to ICIFC and to approved
mortgage banks, most of which are correspondents of ICIFC, to finance mortgage
loans during the time from the closing of the loans to their sale or other
settlement with pre-approved investors. At September 30, 1996, the Warehouse
Lending Operations had $183.4 million in finance receivables outstanding, of
which $169.0 million was outstanding with ICIFC.
 
  IMH's principal sources of net income are (1) net income from the Long-Term
Investment Operations, (2) net income from the Warehouse Lending Operations,
and (3) equity in net income of the Conduit Operations. The net income of the
Conduit Operations is fully subject to federal and state income taxes. The
principal source of income from IMH's Long-Term Investment Operations is net
interest income, which is the net spread between interest earned on mortgage
loans and securities held for investment and the interest costs associated with
the borrowings used to finance such loans and securities, including CMO debt.
The principal sources of income from the Warehouse Lending Operations are net
interest income, which is the net spread between interest earned on warehouse
loans and the interest costs associated with the borrowings used to finance
such loans, and the fee income received from the borrowers in connection with
such loans. The principal sources of income from the Conduit Operations are
gains recognized on the sale of mortgage loans and securities, net interest
income earned on loans purchased by ICIFC pending their securitization or
resale, servicing fees, commitment fees and processing fees.
 
                            RECENT OPERATING RESULTS
 
  For the nine months ended September 30, 1996, the Company earned $7.4 million
or $1.40 per share. On September 17, 1996 the Company declared a dividend of
$0.52 per share payable on October 15, 1996, to stockholders of record as of
September 30, 1996. Revenues for the nine months ended September 30, 1996
increased to $45.7 million as compared to $2.1 million for the same period in
1995, primarily as a result of an increase in interest income from finance
receivables and, secondarily as a result of interest income on the Company's
mortgage loans held as CMO collateral and investment securities available for
sale. Expenses for the nine months ended September 30, 1996 increased to $38.3
million as compared to $931,000 for the same period in 1995, primarily as a
result of (1) an increase in borrowings associated with the financing of the
Company's finance receivables, CMO collateral and investment securities
available for sale, (2) an increase in the provision for loan losses, and (3)
the payment of management fees.
 
                               OPERATING STRATEGY
 
  The Company believes that a structural change has occurred in the mortgage
banking industry which has increased demand for higher yielding non-conforming
mortgage loans. This change has been caused by a number of factors, including:
(1) investors' demand for higher yielding assets due to historically low
interest rates over the past few years; (2) increased securitization of high-
yielding non-conforming mortgage loans by the investment banking industry; (3)
quantification and development of standardized credit criteria by credit rating
agencies for securities backed by non-conforming mortgage loans; (4) increased
competition in the securitization industry, which has reduced borrower interest
rates and fees, thereby making non-conforming mortgage loans more affordable;
and (5) the end of the refinance "boom" of 1992 and 1993, which has caused many
mortgage banks, attempting to sustain origination volume, to seek out non-
conforming mortgage loan borrowers.
 
                                       4
<PAGE>
 
 
  The Company's strategy is to take advantage of the increased demand for non-
conforming mortgage loans through ICIFC's network of correspondents, which sell
non-conforming mortgage loans to ICIFC for resale or securitization. The
Company's strategic objective is to exploit the structural changes in the non-
conforming mortgage loan market through the Conduit Operations and to invest in
the non-conforming mortgage loans and mortgage-backed securities originated and
created by the Conduit Operations. Management believes that the Long-Term
Investment Operations complements the Conduit Operations by providing ICIFC
with a reliable investor for a portion of its loan sales and securitizations
while ICIFC supports the Long-Term Investment Operations by providing non-
conforming mortgage loans and securities backed by non-conforming mortgage
loans. The Company believes the Warehouse Lending Operations provides synergies
with the Company's other operations because it provides funding to the Conduit
Operations and extends the scope of the Company's relationships with certain of
its correspondent loan originators.
 
  The Company purchases, through its network of correspondents, and invests a
substantial portion of its long- term investment portfolio in non-conforming
mortgage loans because management believes that non-conforming mortgage loans
provide an attractive net earnings profile and produce higher yields without
commensurately higher credit risks, when compared with conforming mortgage
loans. Although a substantial majority of the non-conforming loans purchased by
the Conduit Operations are "A" and "A-" grade mortgage loans, the Company's
strategy includes the purchase of "B" and "C" grade mortgage loans. Management
estimates that at September 30, 1996, less than 20% of the loans held as CMO
collateral, for long-term investment or which are included in securitizations
in which IMH holds subordinated interests are "B" and "C" grade mortgage loans,
as defined by the Company. In general, "B" and "C" grade mortgage loans are
residential mortgage loans made to borrowers with lower credit ratings than
borrowers of "A" grade mortgage loans, and are normally subject to greater
frequency of losses and delinquency. As a result, "B" and "C" grade mortgage
loans normally bear a higher rate of interest and higher fees.
 
  Management believes that IMH's tax and corporate structure as a REIT provides
it with an advantage over other financial institutions and mortgage banking
competitors. As a REIT, IMH can generally pass through qualifying earnings as
dividends to stockholders without federal income tax at the corporate level.
Thus, the Company expects to be able to pay higher annual dividends than
traditional mortgage lending institutions, which are subject to federal income
tax. In addition, management believes that the Company provides a more
attractive method of investing in mortgages than regulated financial
institutions because the Company is not subject to most of the federal and
state regulations imposed upon insured financial institutions, and therefore,
does not incur their related costs.
 
                       DIVIDEND POLICY AND DISTRIBUTIONS
 
  To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which does
not necessarily equal net income as calculated in accordance with GAAP)
determined without regard to the deduction for dividends paid and excluding any
net capital gains. Any taxable income remaining after the distribution of
regular quarterly dividends or other dividends will be distributed annually, on
or prior to the date of the first regular quarterly dividend payment date of
the following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for IMH to maintain REIT status will be made by IMH at the discretion
of the Board of Directors and will depend on the taxable earnings of IMH, the
financial condition of IMH and such other factors as the Board of Directors
deems relevant. The Board of Directors has not established a minimum
distribution level. The following table sets forth the dividends paid or
expected to be paid by IMH:
 
<TABLE>
<CAPTION>
                                              STOCKHOLDER        PER SHARE
     PERIOD COVERED                           RECORD DATE     DIVIDEND AMOUNT
     --------------                        ------------------ ---------------
   <S>                                     <C>                <C>
   November 20, 1995 through December 31,
    1995(1)                                January 26, 1996        $0.08
   Quarter ended March 31, 1996            April 24, 1996          $0.39
   Quarter ended June 30, 1996             June 13, 1996           $0.45
   Quarter ended September 30, 1996        September 30, 1996      $0.52
   Special Dividend(2)                     November 15, 1996        (2)
</TABLE>
 
                                       5
<PAGE>
 
- --------
(1) IMH commenced operations on November 20, 1995. The period from November 20,
    1995 to December 31, 1995 is referred to herein as the "Interim Period".
(2) The Board of Directors of IMH has authorized a special dividend payable to
    stockholders of record on November 15, 1996. Purchasers of Common Stock in
    this Offering will therefore not be entitled to receive this special
    dividend. The amount of the special dividend will be determined by the
    Board of Directors prior to the record date and calculated to distribute
    excess taxable income not previously distributed by IMH as dividends, in
    order to comply with REIT qualification requirements. The special dividend
    should not be interpreted as a recurring dividend nor a dividend in lieu of
    IMH's regular dividend for the quarter ending December 31, 1996.
 
                                  THE MANAGER
 
  Imperial Credit Advisors, Inc. ("ICAI" or the "Manager"), a wholly-owned
subsidiary of ICII, oversees the day-to-day operations of the Company, subject
to the supervision of the Company's Board of Directors, pursuant to a
management agreement (the "Management Agreement") which became effective on
November 20, 1995. The Manager is involved in three primary activities: (1)
asset-liability management--primarily the analysis and oversight of the
acquisition, financing and disposition of Company assets; (2) capital
management--primarily the oversight of the Company's structuring, analysis,
capital raising and investor relations activities; and (3) operations
management--primarily the oversight of IMH's operating subsidiaries. The
Management Agreement expires on January 31, 1997 and is renewable annually by
agreement between the Company and the Manager, subject to the approval of a
majority of the Unaffiliated Directors. The Management Agreement may be
terminated by either party at any time upon 60 days' written notice. In the
event that the Management Agreement is terminated or not renewed by the Company
without cause, the Company is obligated to pay the Manager a termination or
non-renewal fee determined by an independent appraisal. The Company currently
intends to negotiate a renewal of the Management Agreement containing more
favorable terms than the current Management Agreement. While there can be no
assurance that such negotiations will be successfully completed, management
believes that such renewal will not be on terms less favorable than the current
Management Agreement. See "Imperial Credit Advisors, Inc.--Management
Agreement."
 
  The Manager is entitled to receive a per annum base management fee payable
monthly in arrears in an amount equal to (1) 3/8 of 1% of Gross Mortgage Assets
of IMH composed of other than Agency Certificates, conforming mortgage loans or
mortgage-backed securities secured by or representing interests in conforming
mortgage loans, plus (2) 1/8 of 1% of the remainder of Gross Mortgage Assets of
IMH plus (3) 1/5 of 1% of the average daily asset balance of the outstanding
amounts under IWLG's warehouse lending facilities. The Company also pays the
Manager, as incentive compensation for each fiscal quarter, an amount equal to
25% of the Net Income of the Company, before deduction of such incentive
compensation, in excess of the amount that would produce an annualized Return
on Equity equal to the Ten Year U.S. Treasury Rate plus 2% (the "25% Incentive
Payment"). "Return on Equity" is computed on Average Net Worth and has no
necessary correlation with the actual distributions received by stockholders.
The 25% Incentive Payment to the Manager is calculated quarterly in arrears
before any income distributions are made to stockholders for the corresponding
period. See "Imperial Credit Advisors, Inc.--Management Agreement" for a more
detailed explanation of the management fee arrangement and "Glossary" for full
definitions of the terms "Gross Mortgage Assets," "Net Income," "Return on
Equity," "Ten Year U.S. Treasury Rate" and "Average Net Worth."
 
                               TAX STATUS OF IMH
 
  IMH elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
taxable year ended December 31, 1995 and believes its organization and manner
of operation have enabled and will continue to enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational
 
                                       6
<PAGE>
 
requirements, including a requirement that it currently distribute at least 95%
of its taxable income (determined without regard to the dividends paid
deduction and excluding net capital gains) to its stockholders. As a REIT, IMH
generally will not be subject to federal income tax on net income it
distributes currently to its stockholders. If IMH fails to qualify as a REIT in
any taxable year, it will be subject to federal income tax at regular corporate
rates. See "Federal Income Tax Considerations" and "Risk Factors--Consequences
of Failure to Maintain REIT Status; IMH Subject to Tax as a Regular
Corporation." Even if IMH qualifies for taxation as a REIT, IMH may be subject
to certain federal, state and local taxes on its income. In addition, ICIFC is
subject to federal and state income tax at regular corporate rates on its net
income.
 
                                  THE OFFERING
 
<TABLE>
<S>                                <C>
Common Stock Offered by the        
 Company (1)...................... 2,500,000 Shares
Common Stock to be Outstanding
 after the Offering (l)(2)........ 9,267,500 Shares
Use of Proceeds................... To provide funding for the Company's Long-
                                   Term Investment Operations and its Warehouse
                                   Lending Operations and for general corporate
                                   purposes.
American Stock Exchange Symbol.... "IMH"
</TABLE>
- --------
(1) Assumes that the Underwriters' option to purchase up to an additional
    375,000 shares of Common Stock to cover over-allotments is not exercised.
   
(2) Does not include 800,000 shares reserved for issuance pursuant to the
    Company's Stock Option Plan, of which options to acquire 250,000 shares are
    outstanding at a per share exercise price of $11.25, options to acquire
    45,000 shares are outstanding at a per share exercise price of $13.00 and
    options to acquire 115,500 shares are outstanding at a per share exercise
    price of $20.625.     
 
                                       7
<PAGE>
 
                                 RISK FACTORS
 
  Before investing in the shares of Common Stock offered hereby, prospective
investors should give special consideration to the information set forth
below, in addition to the information set forth elsewhere in this Prospectus.
The following risk factors are interrelated and, consequently, investors
should treat such risk factors as a whole.
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Prospectus.
 
CHANGES IN INTEREST RATES; PREPAYMENT RISKS
 
  The Company's earnings may be affected by changes in market interest rates.
In conducting its Conduit Operations, the Company is subject to the risk of
rising mortgage interest rates between the time the Company commits to
purchase mortgage loans at a fixed price and the time the Company sells or
securitizes those mortgage loans. An increase in interest rates will generally
result in a decrease in market value of loans that the Company has committed
to purchase at a fixed price, but has not yet sold or securitized.
 
  Higher rates of interest may discourage potential mortgagors from
refinancing mortgage loans, borrowing to purchase a home or seeking a second
mortgage loan, thus decreasing the volume of mortgage loans available to be
purchased by the Conduit Operations. In addition, an increase in short-term
interest rates may decrease or eliminate or, under certain circumstances,
cause to be negative, the Company's net interest spread during the
accumulation of mortgage loans held for sale or the net interest spread on
mortgage loans held for investment when such loans are financed through
reverse repurchase agreements. Should short-term interest rates exceed long-
term interest rates (an "inverted yield curve" scenario), the negative effect
on the Company's net interest spread would likely be coupled with a reduction
in any earnings on any servicing portfolio held by the Company to the extent
prepayments on the underlying mortgage loans increased as long-term interest
rates declined.
 
  In conducting its Long-Term Investment Operations, a significant portion of
the Company's mortgage assets held for long-term investment bear adjustable
interest ("ARMs") or pass-through rates based on short-term interest rates,
and substantially all of the Company's borrowings bear interest at fixed rates
and have maturities of less than 60 days. Consequently, changes in short-term
interest rates may significantly influence the Company's net interest income.
Mortgage loans owned by the Company that are ARMs or mortgage-backed
securities backed by ARMs are subject to periodic interest rate adjustments
based on objective indices such as the CMT Index or LIBOR. Interest rates on
the Company's borrowings are also based on short-term indices. To the extent
any of the Company's mortgage assets are financed with borrowings bearing
interest based on an index different from that used for the related mortgage
assets, so-called "basis" interest rate risk will arise. In such event, if the
index used for the subject mortgage assets is a "lagging" index (such as the
11th District Cost of Funds) that reflects market interest rate changes on a
delayed basis, and the rate borne by the related borrowings reflects market
rate changes more rapidly, the Company's net interest income will be adversely
affected in periods of increasing market interest rates. Additionally, the
Company's mortgage assets are subject to periodic interest rate adjustments
that may be less frequent than the increases or decreases in rates borne by
the borrowings or financings utilized by the Company. Accordingly, in a period
of increasing interest rates, the Company could experience a decrease in net
interest income or a net loss because the interest rates on borrowings could
adjust faster than the interest rates on the Company's ARMs or mortgage-backed
securities backed by ARMs. Moreover, ARMs are typically subject to periodic
and lifetime interest rate caps, which limit the amount an ARMs interest rate
can change during any given period. The Company's borrowings are not subject
to similar restrictions. Hence, in a period of rapidly increasing interest
rates, the Company could also experience a decrease in net interest income or
a net loss in the absence of effective hedging because the interest rates on
borrowings could increase without limitation by caps while the interest rates
on the Company's ARMs and mortgage-backed securities backed by ARMs would be
so limited. Further, some ARMs may be subject to periodic payment caps that
result in some portion of the interest accruing on the ARMs being deferred and
added to the principal
 
                                       8
<PAGE>
 
outstanding. This could result in less cash received by the Company on its
ARMs than is required to pay interest on the related borrowings, which will
not have such payment caps. The Company expects that the net effect of these
factors, all other factors being equal, will be to lower the Company's net
interest income or cause a net loss during periods of rapidly rising interest
rates, which could negatively impact the market price of the Common Stock. No
assurance can be given as to the amount or timing of changes in income. To the
extent that the Company utilizes short-term debt financing for fixed rate
mortgages or mortgage-backed securities backed by fixed rate mortgages, the
Company may also be subject to interest rate risks. To the extent that some of
the warehouse loans made by the Company bear interest based upon an
intermediate-term index while the Company's borrowings to fund such loans bear
interest based upon a short-term index, the Company will be subject to the
risk of narrowing interest rate spreads.
 
  Higher rates of interest may have a negative effect, in particular, on the
yield of any Company portfolio of "principal-only" securities and other types
of mortgage-backed securities purchased at a discount. If the Company were
required to dispose of any "principal-only" securities held in its portfolio
in a rising rate environment, a loss could be incurred. Lower long-term rates
of interest may negatively affect the yield on any Company portfolio of
"interest-only" securities, servicing fees receivable, master servicing fees
receivable and other mortgage loan and mortgage-backed securities purchased at
a premium. It is also possible that in certain low interest rate environments
the Company would not fully recoup any initial investment in such securities
or investments. See "--Risks of Potential Net Interest and Operating Losses in
Connection with Borrowing and Substantial Leverage; Liquidity."
   
  Mortgage prepayment rates vary from time to time and may cause changes in
the amount of the Company's net interest income. Prepayments on ARMs and
mortgage-backed securities backed by ARMs generally increase when mortgage
interest rates fall below the then current interest rates on such ARMs.
Conversely, prepayments of such mortgage loans generally decrease when
mortgage interest rates exceed the then-current interest rate on such mortgage
loans. Prepayment experience also may be affected by the geographic location
of the property securing the mortgage loans, the credit grade of the mortgage
loan, the assumability of the mortgage loans, the ability of the borrower to
convert to a fixed-rate loan, conditions in the housing and financial markets
and general economic conditions. In addition, prepayments on ARMs are affected
by conditions in the fixed-rate mortgage market. If the interest rates on ARMs
increase at a rate greater than the interest rates on fixed-rate mortgage
loans, prepayments on ARMs will tend to increase. In periods of fluctuating
interest rates, interest rates on ARMs may exceed interest rates on fixed-rate
mortgage loans, which may tend to cause prepayments on ARMs to increase at a
greater rate than anticipated. Prepayment rates also vary by credit grade. At
September 30, 1996 80.1% of loans held by the Long-Term Investment Operations
were conforming, non-conforming "A" grade and non-conforming "A-" grade
mortgage loans, as defined by the Company, which may be subject to higher
rates of prepayment than lesser credit grades of non-conforming loans. In
addition, management estimates that a substantial majority of the mortgage
loans underlying the Company's $19.8 million of "interest-only" securities
included in its investment securities available for sale at September 30,
1996, were non-conforming "A" grade and non-conforming "A-" grade mortgage
loans. Second mortgage loans generally have smaller average principal balances
than first mortgage loans and are not viewed by borrowers as permanent
financing. Accordingly, second mortgage loans may experience a higher rate of
prepayment than first mortgage loans. In addition, any future limitations on
the right of borrowers to deduct interest payments on mortgage loans for
Federal income tax purposes may result in a higher rate of prepayment on
mortgage loans. See "Business--Conduit Operations--Marketing and Production."
    
  Prepayments of mortgage loans could affect the Company in several adverse
ways. A substantial portion of the ARMs acquired by the Company (either
directly as mortgage loans or through mortgage-backed securities backed by
ARMs) have been newly originated within six months of purchase and generally
bear initial interest rates which are lower than their "fully-indexed" rates
(the applicable index plus the margin). In the event that such an ARM is
prepaid prior to or soon after the time of adjustment to a fully-indexed rate,
the Company will have experienced an adverse effect on its net interest income
during the time it held such ARM compared with holding a fully-indexed ARM and
will have lost the opportunity to receive interest at the fully-indexed rate
over the expected life of the ARM.
 
                                       9
<PAGE>
 
  The prepayment of any mortgage loan that had been purchased at a premium by
the Company would result in the immediate write-off of any remaining
capitalized premium amount and a consequent decrease in the Company's interest
income. The Conduit Operations' strategy at the present time is to purchase
mortgage loans on a "servicing released" basis (i.e., the Company will acquire
both the mortgage loans and the rights to service them). This strategy
requires payment of a higher purchase price by the Company for the mortgage
loans, and to the extent a premium is paid, the Company is more exposed to the
adverse effects of early prepayments of the mortgage loans, as described
above.
 
HEDGING STRATEGIES
 
  To mitigate risks associated with its Conduit Operations, the Company,
through ICIFC, enters into transactions designed to hedge interest rate risks,
which may include mandatory and optional forward selling of mortgage loans or
mortgage-backed securities, interest rate caps, floors and swaps and buying
and selling of futures and options on futures. To mitigate risks associated
with its Long-Term Investment Operations, the Company's policy is to attempt
to match the interest rate sensitivities of its adjustable rate mortgage
assets held for investment with the associated liabilities. The Company may
purchase interest rate caps, interest rate swaps or similar instruments to
attempt to mitigate the cost of its variable rate liabilities increasing at a
faster rate than the earnings on its subject assets during a period of rising
interest rates. The nature and quantity of the hedging transactions for the
Conduit Operations and the Long-Term Investment Operations is determined by
the management of the Company based on various factors, including market
conditions and the expected volume of mortgage loan purchases, and there have
been no limitations placed on management's use of certain instruments in such
hedging transactions. No assurance can be given that such hedging transactions
will offset the risks of changes in interest rates, and it is possible that
there will be periods during which the Company could incur losses after
accounting for its hedging activities. See "Business--Hedging."
 
 
RISKS RELATING TO OPERATIONS
 
  The Company makes long-term investments in mortgage loans and mortgage-
backed securities. The Company does not obtain credit enhancements such as
mortgage pool or special hazard insurance for its mortgage loans and
investments other than (1) FHA insurance, (2) VA guarantees and (3) private
mortgage insurance, in each case only when specified by its underwriting
criteria. Accordingly, during the time it holds mortgage loans for investment,
the Company is subject to risks of borrower defaults and bankruptcies and
special hazard losses that are not covered by standard hazard insurance (such
as those occurring from earthquakes or floods). In the event of a default on
any mortgage loan held by the Company, the Company bears the risk of loss of
principal to the extent of any deficiency between the value of the related
mortgaged property, plus any payments from an insurer or guarantor, and the
amount owing on the mortgage loan. Defaulted mortgage loans will also cease to
be eligible collateral for borrowings, and will have to be financed by the
Company out of other funds until ultimately liquidated.
 
  Credit risks associated with non-conforming mortgage loans, especially "B"
and "C" grade loans, may be greater than those associated with conforming
mortgage loans that comply with FNMA and FHLMC guidelines. Non-conforming
mortgage loans generally consist of jumbo mortgage loans (loans with a
principal balance in excess of $207,000) or loans that are originated in
accordance with underwriting or product guidelines that differ from those
applied by FNMA or FHLMC. The principal differences between conforming loans
and the non-conforming loans purchased by the Company include the applicable
loan-to-value ratios, the credit and income histories of the mortgagors, the
documentation required for approval of the mortgagors, the types of properties
securing the mortgage loans, loan sizes and the mortgagors' occupancy status
with respect to the mortgaged property. As a result of these and other
factors, the interest rates charged on non-conforming loans are often higher
than those charged for conforming loans. The combination of different
underwriting criteria and higher rates of interest may lead to higher
delinquency rates and/or credit losses for non-conforming as compared to
conforming loans and could have an adverse effect on the Company's operations
to the extent that the Company invests in such loans or securities evidencing
interests in such loans. At September 30, 1996, IMH maintained an allowance
for loan losses related to such estimated losses of $3.8 million.
 
                                      10
<PAGE>
 
  In addition, with respect to second mortgage loans, the Company's security
interest in the property securing such loans is subordinated to the interest
of the first mortgage holder. If the value of the property securing the second
mortgage loan is not sufficient to repay the borrower's obligation to the
first mortgage holder upon foreclosure or if there is no additional value in
such property after satisfying the borrower's obligation to the first mortgage
loan holder, the borrower's obligation to the Company will likely not be
satisfied.
 
  The yield derived from certain classes of mortgage-backed securities created
in connection with securitizations by ICIFC and subsequently retained by the
Company, including, but not limited to, "interest-only," "principal-only" and
subordinated securities, is particularly sensitive to interest rate,
prepayment and credit risks. At September 30, 1996, the Company's portfolio of
investment securities available for sale was $47.9 million. The Company's
investment portfolio includes each of these classes of securities, and may
include in the future, investments in master servicing fees receivable, which
have characteristics comparable to "interest- only" securities insofar as
their value tends to decline as prepayment rates increase. See "--Changes in
Interest Rates; Prepayment Risks." Because subordinated securities, in
general, bear all credit losses prior to the related senior securities, the
amount of credit risk associated with any investment in such subordinated
securities is significantly greater than that associated with a comparable
investment in the related senior securities and, on a percentage basis, the
risk is greater than holding the underlying mortgage loans directly. See
"Business--Long-Term Investment Operations--Investments in Mortgage-Backed
Securities."
 
  The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary mortgage market. To the extent third parties have
been contracted to insure against these types of losses, the Company would be
dependent in part upon the creditworthiness and claims paying ability of the
insurer and the timeliness of reimbursement in the event of a default on the
underlying obligations. Further, the insurance coverage for various types of
losses is limited, and losses in excess of the limitation would be borne by
the Company.
 
  As a warehouse lender, the Company is a secured creditor of mortgage bankers
and is subject to the risks associated with such businesses, including the
risks of fraud, borrower default and bankruptcy, any of which could result in
credit losses for the Company. Any claim of the Company as a secured lender in
a bankruptcy proceeding may be subject to adjustment and delay. See
"Business--Warehouse Lending Operations."
 
  In connection with its Conduit Operations, ICIFC has engaged in
securitizations and bulk whole loan sales. In connection with the issuance of
mortgage-backed securities by ICIFC, such securities have been non-recourse to
ICIFC, except in the case of a breach of the standard representations and
warranties made by ICIFC when mortgage loans are securitized. While ICIFC has
recourse to the sellers of mortgage loans for any such breaches, there can be
no assurance of the sellers' abilities to honor their respective obligations.
ICIFC has engaged in bulk whole loan sales pursuant to agreements that provide
for recourse by the purchaser against ICIFC (and, in certain cases, IMH as
guarantor) in the event of a breach of representation or warranty made by
ICIFC, any fraud or misrepresentation during the mortgage loan origination
process or upon early default on such mortgage loans. ICIFC has generally
limited the remedies of such purchasers to the remedies ICIFC receives from
the persons from whom ICIFC purchased such mortgage loans. However, in some
cases, the remedies available to a purchaser of mortgage loans from ICIFC are
broader than those available to ICIFC against its seller, and should a
purchaser exercise its rights against ICIFC, ICIFC may not always be able to
enforce whatever remedies ICIFC may have against its sellers. ICIFC may from
time to time provide provisions for loan losses related to estimated losses
from the breach of a standard representation and warranty. At September 30,
1996, ICIFC maintained an allowance for loan losses related to such estimated
losses of $728,000. During the nine months ended September 30, 1996, no losses
occurred and no loans were repurchased by ICIFC. In 1995, 1994 and 1993, the
impact of loans repurchased as a result of borrower misrepresentations was not
material.
 
DEPENDENCE ON SECURITIZATIONS
 
  The Company securitizes a substantial portion of the mortgage loans it
purchases. ICIFC relies significantly upon securitizations to generate cash
proceeds for repayment of its warehouse line and to create credit
availability. Further, gains on sales from ICIFC's securitizations represent a
significant portion of ICIFC's
 
                                      11
<PAGE>
 
earnings. Several factors affect the Company's ability to complete
securitizations of its mortgage loans, including conditions in the securities
markets generally, conditions in the asset-backed securities market
specifically, the credit quality of the mortgage loans purchased by the
Conduit Operations and the Company's ability to obtain credit enhancement. If
ICIFC were unable to securitize profitably a sufficient number of its mortgage
loans in a particular financial reporting period, then the Company's revenues
for such period would decline, which could result in lower income or a loss
for such period. In addition, unanticipated delays in closing a securitization
could also increase ICIFC's interest rate risk by increasing the warehousing
period for its mortgage loans.
 
  The Company also relies on securitizations in the form of CMO borrowings to
finance a substantial portion of the loans held by the Long-Term Investment
Operations. Any reduction in the Company's ability to complete additional
securitizations would require the Company to utilize other sources of
financing which may be on less favorable terms.
 
  ICIFC endeavors to effect quarterly public securitizations of its loan
pools. However, market and other considerations, including the volume of
ICIFC's mortgage acquisitions and the conformity of such loan pools to the
requirements of insurance companies and rating agencies, may affect the timing
of such transactions. Any delay in the sale of a loan pool beyond a quarter-
end would postpone the recognition of gain related to such loans and would
likely result in lower income or a loss for such quarter being reported by
ICIFC.
 
  In connection with several securitizations during the first nine months of
1996, in order to gain access to the securitization market, the Company relied
on credit enhancements provided by insurance companies to guarantee senior
interests in the related trusts to enable them to obtain "AAA/Aaa" ratings for
such interests. Any unwillingness of insurance companies to guarantee the
senior interests in the Company's loan pools could have a material adverse
effect on the Company's results of operations and financial condition.
 
INTEREST-ONLY, PRINCIPAL-ONLY AND SUBORDINATED SECURITIES
 
  At September 30, 1996, IMH's assets included "interest-only," "principal-
only" and subordinated securities of approximately $40.2 million, valued by
the Company in accordance with SFAS No. 115, "Accounting for Certain Debt and
Equity Securities." IMH records its retained interest in ICIFC's
securitizations (including "interest-only," "principal-only" and subordinated
securities) as an investment, and ICIFC derives a substantial portion of its
income by including the value of such securities in calculating gains upon
sales of senior interests in loans through securitizations. Realization of
these "interest-only," "principal-only" and subordinated securities in cash is
subject to the timing and ultimate realization of cash flows associated
therewith, which is in turn effected by the prepayment and loss
characteristics of the underlying loans. The Company estimates future cash
flows from these "interest-only," "principal-only" and subordinated securities
and values such securities utilizing assumptions that it believes are
consistent with those that would be utilized by an unaffiliated third party
purchaser and records them as available for sale securities in accordance with
SFAS No. 115. If actual experience differs from the assumptions used in the
determination of the asset value, future cash flows and earnings could be
negatively impacted, and the Company could be required to reduce the value of
its "interest-only," "principal-only" and subordinated securities in
accordance with SFAS No. 115. The value of such securities can therefore
fluctuate widely and may be extremely sensitive to changes in discount rates,
projected mortgage loan prepayments and loss assumptions. The Company has not
experienced material loan losses, and its aggregate delinquency experience has
been relatively low, in part due to its relatively unseasoned portfolio. The
Company believes that its aggregate delinquency and loan loss experience will
increase as its loan portfolio matures. To the Company's knowledge, the market
for the sale of the "interest-only," "principal-only" and subordinated
securities is limited. No assurance can be given that "interest-only,"
"principal-only" and subordinated securities could be sold at their reported
value, if at all.
 
MORTGAGE SERVICING RIGHTS
 
  When ICIFC purchases loans that include the associated servicing rights, the
allocated price paid for the servicing rights, net of amortization based on
assumed prepayment rates, is reflected on its financial statements as Mortgage
Servicing Rights ("MSRs"). At September 30, 1996, ICIFC had capitalized $7.5
million of MSRs.
 
                                      12
<PAGE>
 
  SFAS No. 122 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair
value relative to the loan as a whole. To determine the fair value of the
servicing rights created, ICIFC uses a valuation model that calculates the
present value of future net servicing revenues to determine the fair value of
the servicing rights. In using this valuation method, ICIFC incorporates
assumptions that it believes market participants would use in estimating
future net servicing income which include estimates of the cost of servicing,
an inflation rate, ancillary income per loan, a prepayment rate, a default
rate and a market discount rate.
 
  MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs'
valuation allowance. The rate of prepayment of loans is affected by a variety
of economic and other factors, including prevailing interest rates and the
availability of alternative financing. The effect of those factors on loan
prepayment rates may vary depending on the particular type of loan. Estimates
of prepayment rates are made based on management's expectations of future
prepayment rates, which are based, in part, on the historical rate of
prepayment of ICIFC's loans, and other considerations. There can be no
assurance of the accuracy of management's prepayments estimates. If actual
prepayments with respect to loans serviced occur more quickly than were
projected at the time such loans were sold, the carrying value of the MSRs may
have to be reduced through a provision recorded to increase the MSRs'
valuation allowance in the period the fair value declined below the MSRs'
carrying value. If actual prepayments with respect to loans occur more slowly
than estimated, the carrying value of MSRs would not increase, although total
income would exceed previously estimated amounts and the related valuation
allowances, if any, could be unnecessary.
 
RISKS OF POTENTIAL NET INTEREST AND OPERATING LOSSES IN CONNECTION WITH
BORROWINGS AND SUBSTANTIAL LEVERAGE; LIQUIDITY
   
  The Company has employed a financing strategy to increase the size of its
investment portfolio by borrowing a substantial portion (up to approximately
98%, depending on the nature of the underlying asset) of the market value of
substantially all of its investments in mortgage loans and mortgage-backed
securities. The Company initially intended to maintain a ratio of equity
capital (book value of stockholders' equity) to total assets of approximately
15%. This target ratio was developed on the assumption that the Company would
utilize the sale of pass-through mortgage-backed securities as its primary
securitization technique, as compared to financing the loans in the Company's
long-term investment portfolio through CMOs. Subsequently, the Company has
elected to utilize CMO borrowings to a substantial degree because CMOs are
more consistent with IMH's maintenance of its REIT tax status. CMOs receive
financing treatment as opposed to sale treatment. Financing treatment allows
the Company to recognize spread income over time as qualifying interest income
under the REIT gross income tests, as compared to gains at ICIFC from the
issuance of pass-through securities which receives sale treatment and is fully
taxable. The value of the assets collateralizing CMO borrowings are reflected
on the Company's balance sheet, while the value of the assets backing pass-
through securities are not reflected on the balance sheet. Consequently, CMO
borrowings tend to increase the assets of the Company and to reduce the
Company's ratio of equity capital to total assets, as compared to the sale of
pass-through securities. It is expected that the continued use of CMOs will
likely result in a ratio of equity capital to total assets generally between
7% to 8%, although such ratio may vary substantially depending upon, among
other things, the timing of ICIFC's securitizations and the Company's
offerings of equity capital. The Company's ratio of equity capital to total
assets at September 30, 1996 was 10.2%, and the ratio at December 31, 1995 was
7.4%.     
 
  A majority of other Company borrowings are collateralized, primarily in the
form of reverse repurchase agreements, which are based on the market value of
the Company's assets pledged to secure the specific borrowings. The cost of
borrowings under a reverse repurchase agreement corresponds to the referenced
interest rate (e.g., the CMT Index or LIBOR) plus or minus a margin. The
margin over or under the referenced interest rate varies depending upon the
lender, the nature and liquidity of the underlying collateral, the movement of
interest rates, the availability of financing in the market and other factors.
If the returns on the assets and mortgage-backed securities financed with
borrowed funds fail to cover the cost of the borrowings, the Company
 
                                      13
<PAGE>
 
will experience net interest losses and may experience net losses. See
"Business--Long-Term Investment Operations."
 
  The use of CMOs as financing vehicles tends to increase the Company's
leverage as mortgage loans held for CMO collateral are retained for investment
rather than sold in a secondary market transaction. Retaining mortgage loans
as CMO collateral exposes the Company to greater potential credit losses than
from the use of securitization techniques that are treated as sales. The
creation of a CMO involves an equity investment by the Company to fund
collateral in excess of the amount of the securities issued. Should the
Company experience credit losses greater than expected, the value of the
Company's equity investment in its CMOs would decrease and the Company's
financial condition and results of operations would be materially adversely
affected.
 
  The ability of the Company to achieve its investment objectives depends not
only on its ability to borrow money in sufficient amounts and on favorable
terms but also on the Company's ability to renew or replace on a continuous
basis its maturing short-term borrowings. The Company's business strategy
relies on short-term borrowings to fund long-term mortgage loans and
investment securities available for sale. In the event the Company is not able
to renew or replace maturing borrowings, the Company could be required to
sell, under adverse market conditions, all or a portion of its mortgage loans
and investment securities available for sale, and could incur losses as a
result. In addition, in such event the Company may be required to terminate
hedge positions, which could result in further losses to the Company. Such
events could have a materially adverse effect on the Company.
 
  Certain of the Company's mortgage loans may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets could limit the Company's ability
to borrow or result in lenders initiating margin calls (i.e., requiring a
pledge of cash or additional mortgage loans to reestablish the ratio of the
amount of the borrowing to the value of the collateral). The Company could be
required to sell mortgage loans under adverse market conditions in order to
maintain liquidity. If these sales were made at prices lower than the carrying
value of its mortgage loans, the Company would experience losses. A default by
the Company under its collateralized borrowings could also result in a
liquidation of the collateral, including any cross-collateralized assets, and
a resulting loss of the difference between the value of the collateral and the
amount borrowed. Additionally, in the event of a bankruptcy of the Company,
certain reverse repurchase agreements may qualify for special treatment under
the Bankruptcy Code, the effect of which is, among other things, to allow the
creditors under such agreements to avoid the automatic stay provisions of the
Bankruptcy Code and to liquidate the collateral under such agreements without
delay. Conversely, in the event of a bankruptcy of a party with whom the
Company had a reverse repurchase agreement, the Company might experience
difficulty repurchasing the collateral under such agreement if it were to be
repudiated and the Company's claim against the bankrupt lender for damages
resulting therefrom were to be treated simply as one of an unsecured creditor.
Should this occur, the Company's claims would be subject to significant delay
and, if and when received, may be substantially less than the damages actually
suffered by the Company. Although the Company has entered into reverse
repurchase agreements with several different parties and has developed
procedures to reduce its exposure to such risks, no assurance can be given
that the Company will be able to avoid such third party risks. See "Business--
Long-Term Investment Operations--Financing."
 
  To the extent the Company is compelled to liquidate mortgage loans or
mortgage-backed securities classified as Qualified REIT Assets to repay
borrowings, IMH may be unable to comply with the REIT asset and income tests,
possibly jeopardizing IMH's status as a REIT. Gain from the sale or other
disposition of such assets may be included under the 30% gross income test,
which requires, in general, that short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions, and
gain on the sale or other disposition of real property held for less than four
years represent less than 30% of the REIT's gross income for each taxable
year. The Code does not provide for any mitigating provisions with respect to
the 30% gross income test. Accordingly, if IMH failed to meet the 30% gross
income test, its status as a REIT would terminate automatically. See "Federal
Income Tax Considerations--Taxation of IMH--Income Tests."
 
  The REIT provisions of the Code require IMH to distribute to its
stockholders substantially all of its taxable income. As a result, such
provisions restrict the Company's ability to retain earnings and replenish the
capital committed to its business activities.
 
                                      14
<PAGE>
 
  The Company's liquidity is also affected by its ability to access the debt
and equity capital markets. To the extent that the Company is unable to
regularly access such markets, the Company could be forced to sell assets at
unfavorable prices or discontinue various business activities in order to meet
its liquidity needs. As a result, any such inability to access the capital
markets could have a negative impact on the Company's earnings.
 
  Substantially all of the assets of the Conduit Operations have been pledged
to secure the repayment of mortgage-backed securities issued in the
securitization process, reverse repurchase agreements or other borrowings. In
addition, substantially all of the mortgage loans that the Company has
acquired and will in the future acquire have been or will be pledged to secure
borrowings pending their securitization or sale or as a part of their long-
term financing. The cash flows received by the Company from its investments
that have not yet been distributed, pledged or used to acquire mortgage loans
or other investments may be the only unpledged assets available to unsecured
creditors and stockholders in the event of liquidation of the Company.
 
DEMAND FOR RESIDENTIAL MORTGAGE LOANS AND THE COMPANY'S NON-CONFORMING LOAN
PRODUCTS
 
  The availability of mortgage loans meeting the Company's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market and, in particular, the demand for non-
conforming mortgage loans. The size and level of activity in the residential
real estate lending market depend on various factors, including the level of
interest rates, regional and national economic conditions and inflation and
deflation in residential property values, as well as the general regulatory
and tax environment as it relates to mortgage lending. See "Business--
Regulation." To the extent the Company is unable to obtain sufficient mortgage
loans meeting its criteria, the Company's business will be adversely affected.
 
  FNMA and FHLMC are not currently permitted to purchase mortgage loans with
original principal balances above $207,000. If this dollar limitation is
increased without a commensurate increase in home prices, the Company's
ability to maintain or increase its current acquisition levels could be
adversely affected as the size of the non-conforming mortgage loan market may
be reduced, and FNMA and FHLMC may be in a position to purchase a greater
percentage of the mortgage loans in the secondary market than they currently
acquire.
 
  In general, lower interest rates prompt greater demand for mortgage loans,
because more individuals can afford to purchase residential properties, and
refinancing and second mortgage loan transactions increase. However, if low
interest rates are accompanied by a weak economy and high unemployment, demand
for housing and residential mortgage loans may decline. Conversely, higher
interest rates and lower levels of housing finance and refinance activity may
decrease mortgage loan purchase volume levels, resulting in decreased
economies of scale and higher costs per unit, reduced fee income, smaller
gains on the sale of non-conforming mortgage loans and lower net income.
 
  Although the Company seeks geographic diversification of the properties
underlying the Company's mortgage loans and mortgage-backed securities, it
does not set specific limitations on the aggregate percentage of its portfolio
composed of such properties located in any one area (whether by state, zip
code or other geographic measure). Concentration in any one area will increase
exposure of the Company's portfolio to the economic and natural hazard risks
associated with such area. At September 30, 1996, 56.8% of IMH's mortgage
loans held for investment and CMO collateral were secured by properties in
California. In addition, management estimates that a majority of the loans
included in securitizations in which IMH holds subordinated interests are
secured by properties in California. Certain parts of California have
experienced an economic downturn in recent years, particularly in areas of
high defense industry concentration, and have suffered the effects of certain
natural hazards such as earthquakes, fires and floods, as well as riots.
 
RISKS OF CONTRACTED SUB-SERVICING
 
  ICIFC currently contracts for the sub-servicing of all loans it purchases
and holds for sale or investment with third-party sub-servicers. This
arrangement allows the Conduit Operations to increase the volume of loans it
originates and purchases without incurring the expenses associated with
servicing operations. As with any
 
                                      15
<PAGE>
 
external service provider, ICIFC is subject to risks associated with
inadequate or untimely services. Many of ICIFC's borrowers require notices and
reminders to keep their loans current and to prevent delinquencies and
foreclosures. A substantial increase in the ICIFC's delinquency rate or
foreclosure rate could adversely affect its ability to access profitably the
capital markets for its financing needs, including future securitizations.
ICIFC regularly reviews the delinquencies of its servicing portfolio. Although
the Conduit Operations periodically reviews the costs associated with
establishing operations to service the loans it purchases, it has no plans to
establish and perform servicing operations at this time. See "Business--
Servicing and Master Servicing."
 
  Each of ICIFC's sub-servicing agreements with its third-party sub-servicers
provides that if ICIFC terminates the agreement without cause (as defined in
the agreement), ICIFC will be required to pay the third-party sub-servicer a
fee. Further, one such agreement provides that ICIFC shall pay the third-party
sub-servicer a transfer fee per loan for any mortgage loan which ICIFC
transfers to another sub-servicer without terminating the agreement. Depending
upon the size of ICIFC's loan portfolio sub-serviced at any point in time, the
termination penalty that ICIFC would be obligated to pay upon termination
without cause, may be substantial.
 
  ICIFC subcontracts with sub-servicers to service the loans in each of the
Company's public securitizations. With respect to such loans, the related
pooling and servicing agreements permit ICIFC to be terminated as servicer
under specific conditions described in such agreements, which generally
include the failure to make payments, including advances, within specific time
periods. Such termination would generally be at the option of the trustee
and/or the financial guaranty insurer for such securitization, if applicable,
but not at the option of the Company. If, as a result of a sub-servicer's
failure to perform adequately, ICIFC were terminated as servicer of a
securitization, the value of any servicing rights held by ICIFC would be
adversely impacted. In addition, if a new sub-servicer were selected with
respect to any such securitization, the change in sub-servicing may result in
greater delinquencies and losses on the related loans, which would adversely
impact the value of any "interest-only," "principal-only" and subordinated
securities held by the Company in connection with such securitization.
 
LIMITED HISTORY OF OPERATIONS
 
  The Company commenced operations on November 20, 1995. Prior to the date of
the Contribution Transaction, ICIFC was a division or subsidiary of ICII, and
IWLG was a division of SPTL. Although the Company was profitable for the year
ended December 31, 1995 and for the nine months ended September 30, 1996, and
has experienced substantial growth in mortgage loan originations and total
revenues, there can be no assurance that the Company will be profitable in the
future or that these rates of growth will be sustainable or indicative of
future results. Prior to the Company's initial public offering in November
1995 (the "Initial Public Offering"), each of ICIFC and IWLG benefited from
the financial, administrative and other resources of ICII and SPTL,
respectively.
 
  Since the Company commenced operations in November 1995, its growth in
purchasing loans has been significant. In light of this growth, the historical
financial performance of the Company may be of limited relevance in predicting
future performance. Also, the loans purchased by the Company and included in
the Company's securitizations have been outstanding for a relatively short
period of time. Consequently, the delinquency and loss experience of the
Company's loans to date may not be indicative of future results. It is
unlikely that the Company will be able to maintain delinquency and loan loss
ratios at their present levels as the portfolio becomes more seasoned.
 
  A reduction in the number of loans available for purchase or a lack of
demand for the Company's mortgage loan products could limit the Company's
ability to fully invest the net proceeds of this Offering in mortgage loans
and mortgage-backed securities in a timely manner after completion of this
Offering. Should such an event occur, the Company will likely not be able to
maintain the level of performance it has achieved since the Contribution
Transaction.
 
 
                                      16
<PAGE>
 
COMPETITION FOR MORTGAGE LOANS
 
  In purchasing non-conforming mortgage loans and issuing securities backed by
such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance companies,
other lenders and other entities purchasing mortgage assets. Continued
consolidation in the mortgage banking industry may also reduce the number of
current sellers to the Conduit Operations, thus reducing the Company's
potential customer base, resulting in the Company purchasing a larger
percentage of mortgage loans from a smaller number of sellers. Such changes
could negatively impact the Conduit Operations. Mortgage-backed securities
issued through the Conduit Operations face competition from other investment
opportunities available to prospective investors. See "--Demand for
Residential Mortgage Loans and the Company's Non-Conforming Loan Products,"
"Business--Competition" and "Business--Conduit Operations--Marketing and
Production--Mortgage Loans Acquired."
 
  The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPTL may
compete with the Company; this activity is not restricted by an agreement not
to compete executed by and among the Company, SPTL and ICII in connection with
the Contribution Transaction (the "Non-Compete Agreement"). Also, Southern
Pacific Funding Corporation ("SPFC") is a subsidiary of ICII whose business is
primarily to act as a wholesale originator and a bulk purchaser of non-
conforming mortgage loans. These activities are not restricted by the Non-
Compete Agreement. In addition, after the expiration of the Non-Compete
Agreement in November 1997, ICII or any 25% entity may compete with the
Company's Long-Term Investment Operations, the Conduit Operations and the
Warehouse Lending Operations. While the Company believes such activities will
not have a material adverse effect on the Company's operations, there can be
no assurance of this. See "--Relationship with ICII and its Affiliates;
Conflicts of Interest" and "Business--Competition."
 
RECENT AND CONTINUED EXPANSION
 
  The Company's total revenues and net income have grown significantly since
the Company's inception, primarily due to increased mortgage purchasing, sales
and investing activities. The Company intends to continue to pursue a growth
strategy for the foreseeable future, and its future operating results will
depend largely upon its ability to expand its Long-Term Investment Operations,
its Conduit Operations and its Warehouse Lending Operations. Each of these
plans requires additional personnel and assets and there can be no assurance
that the Company will be able to successfully expand and operate its expanded
operations profitably. There can be no assurance that the Company will
anticipate and respond effectively to all of the changing demands that its
expanding operations will have on the Company's management, information and
operating systems, and the failure to adapt its systems could have a material
adverse effect on the Company's results of operations and financial condition.
There can be no assurance that the Company will successfully achieve its
continued expansion or, if achieved, that the expansion will result in
profitable operations.
     
  A significant portion of the Company's mortgage loan acquisitions since its
inception have been from ICII or its affiliates. Of the $1.2 billion and $1.1
billion of mortgage loans acquired by the Company for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively, $219.0
million and $585.9 million, respectively, were purchased from ICII or its
affiliates. Mortgage loan acquisitions from ICII for the nine months ended
September 30, 1996 included acquisitions of mortgage loans from correspondents
associated with ICII. ICII has recently divested itself of its mortgage banking
operations except for those activities referred to in the Non-Compete Agreement,
as described in "Certain Transactions." As a result, the level of mortgage loan
acquisitions from ICII has decreased.     
 
EXPERIENCE OF THE MANAGER IN MANAGING A REIT
 
  The Company is dependent for the selection, structuring and monitoring of
its assets and associated borrowings on the diligence and skill of its
officers and the officers and employees of the Manager or ICII which
 
                                      17
<PAGE>
 
have limited experience in managing a REIT. See "Imperial Credit Mortgage
Holdings, Inc.--Directors and Executive Officers" and "Imperial Credit
Advisors, Inc." for further descriptions of the business experience of key
management personnel.
 
RELATIONSHIP WITH ICII AND ITS AFFILIATES; CONFLICTS OF INTEREST
 
  The Company is subject to conflicts of interest arising from its
relationship with its manager, ICAI, and ICAI's affiliates. ICAI, through its
affiliation with ICII, has interests that may conflict with those of the
Company in fulfilling certain of its duties. In addition, certain of the
officers and Directors of ICII or its affiliates are also officers and
Directors of the Company, including H. Wayne Snavely and Joseph R. Tomkinson,
Chairman of the Board and Chief Executive Officer of IMH, respectively. See
"Imperial Credit Mortgage Holdings, Inc.-- Directors and Executive Officers"
and "Imperial Credit Advisors, Inc.--Directors and Executive Officers." The
Company also relies upon ICAI (which has entered into a subcontract with ICII
to provide certain management services to the Company as ICAI deems necessary)
for the oversight of day-to-day operations of its business. All other
operations of the Company are conducted through ICIFC and IWLG, which had 91
and five employees, respectively, as of September 30, 1996. No assurance can
be given that the Company's relationships with ICAI and its affiliates will
continue indefinitely. The failure or inability of ICAI to provide the
services required of it under the Management Agreement (or of ICII to perform
its obligations under its subcontract with ICAI) or any other agreements or
arrangements with the Company would have a material adverse effect on the
Company's business. In addition, as the holder of all of the outstanding
voting stock of ICIFC, ICII has the right to elect all directors of ICIFC and
the ability to control the outcome of all matters for which the consent of the
holders of the common stock of ICIFC is required.
 
  It is the intention of the Company and ICII that any agreements and
transactions, taken as a whole, between the Company, on the one hand, and ICII
or its affiliates, on the other hand, are fair to both parties. To minimize or
avoid potential conflicts of interests, all three Unaffiliated Directors must
independently and by majority vote approve all such agreements and
transactions. However, there can be no assurance that each of such agreements
or transactions will be on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties. See "Imperial Credit
Mortgage Holdings, Inc.," "Imperial Credit Advisors, Inc.," "Relationships
with Affiliates" and "Certain Transactions."
 
  Pursuant to the Non-Compete Agreement, except as set forth below, ICII and
any 25% entity may not compete with the Warehouse Lending Operations and may
not establish a network of third party correspondent loan originators or
another end-investor in non-conforming mortgage loans. ICII has also agreed
(1) that, in addition to any other remedy that may be available to the
Company, it will sell, at a price determined by an independent appraisal, all
of the outstanding shares of common stock of ICIFC to be retained by ICII
pursuant to the Contribution Transaction to any third party reasonably
acceptable to the Company in the event that ICII or any 25% entity establishes
a network of third party correspondent loan originators or other end-investors
in non-conforming loans during the term of the Non-Compete Agreement and (2)
that any sale by ICIFC of shares of its capital stock or any sale or transfer
by ICII of any shares of the common stock of ICIFC which ICII owns may only be
made to a party reasonably acceptable to the Company. Pursuant to the Non-
Compete Agreement, SPTL may continue to act as an end-investor in non-
conforming mortgage loans and Southern Pacific Funding Corporation, a
subsidiary of ICII, may continue its business, which is primarily to act as a
wholesale originator and bulk purchaser of non-conforming mortgage loans.
Pursuant to a right of first refusal agreement executed by and between ICIFC
and ICII in connection with the Contribution Transaction (the "Right of First
Refusal Agreement"), ICII has granted ICIFC a right of first refusal to
purchase all non-conforming mortgage loans that ICII or any 25% entity
originates or acquires and subsequently offers for sale and ICIFC has granted
ICII or any 25% entity designated by ICII a right of first refusal to purchase
all conforming mortgage loans that ICIFC acquires and subsequently offers for
sale.
 
                                      18
<PAGE>
 
CONSEQUENCES OF FAILURE TO MAINTAIN REIT STATUS; IMH SUBJECT TO TAX AS A
REGULAR CORPORATION
 
  Commencing with its taxable year ended December 31, 1995, IMH has operated
and intends to continue to operate so as to qualify as a REIT under the Code.
Although IMH believes that it has operated and will continue to operate in such
a manner, no assurance can be given that IMH was organized or has operated, or
will be able to continue to operate, in a manner which will allow it to qualify
as a REIT. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual and others on a quarterly basis) established
under highly technical and complex Code provisions for which there are only
limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
IMH's control. For example, in order to qualify as a REIT, at least 95% of
IMH's gross income (including the gross income of IWLG and IMH Assets) in any
year must be derived from qualifying sources, and IMH must pay distributions to
stockholders aggregating annually at least 95% of its (including IWLG's and IMH
Assets') taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains). No assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. At the
closing of the offering described in this prospectus, IMH will receive an
opinion from Latham & Watkins, tax counsel to IMH, that, commencing with IMH's
taxable year ended December 31, 1995, IMH has been organized in conformity with
the requirements for qualification as a REIT, and its proposed method of
operation has enabled and will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. See "Federal Income Tax
Considerations--Taxation of IMH" and "Legal Matters." Such legal opinion is
based on various assumptions and factual representations by IMH regarding IMH's
ability to meet the various requirements for qualification as a REIT, and no
assurance can be given that actual operating results will meet these
requirements. Such legal opinion is not binding on the Internal Revenue Service
(the "Service") or any court.
 
  Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed the value of 5% of the
REIT's total assets on certain testing dates. See "Federal Income Tax
Considerations--Taxation of IMH--Requirements for Qualification." IMH believes
that the aggregate value of the securities of ICIFC held by IMH have been and
will continue to be less than 5% of the value of IMH's total assets. In
rendering its opinion as to the qualification of IMH as a REIT, Latham &
Watkins is relying on the representation of IMH regarding the value of its
securities in ICIFC.
 
  If IMH were to fail to qualify as a REIT in any taxable year, IMH would be
subject to federal income tax (including any applicable alternative minimum
tax) on its (including IWLG's and IMH Assets') taxable income at regular
corporate rates and would not be allowed a deduction in computing its taxable
income for amounts distributed to its stockholders. Moreover, unless entitled
to relief under certain statutory provisions, IMH also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This treatment would reduce the net earnings of
IMH available for investment or distribution to stockholders because of the
additional tax liability to IMH for the years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Federal Income Tax Considerations--Taxation of IMH--Requirements for
Qualification."
 
  Other Tax Liabilities. Even if IMH maintains its REIT status, it may be
subject to certain federal, state and local taxes on its income. For example,
if IMH has net income from a prohibited transaction, such income will be
subject to a 100% tax. See "Federal Income Tax Considerations--Taxation of
IMH." In addition, the net income, if any, from the Conduit Operations
conducted through ICIFC is subject to federal income tax at regular corporate
tax rates. See "Federal Income Tax Considerations--Other Tax Consequences."
 
INVESTMENT COMPANY ACT RISK
 
  The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are
 
                                      19
<PAGE>
 
"primarily engaged in the business of purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate" ("Qualifying
Interests"). Under the current interpretation of the staff of the Commission,
in order to qualify for this exemption, the Company must maintain at least 55%
of its assets directly in mortgage loans, qualifying pass-through certificates
and certain other Qualifying Interests in real estate. In addition, unless
certain mortgage securities represent all the certificates issued with respect
to an underlying pool of mortgages, such mortgage securities may be treated as
securities separate from the underlying mortgage loans and, thus, may not
qualify as Qualifying Interests for purposes of the 55% requirement. The
Company's ownership of certain mortgage loans therefore may be limited by the
provisions of the Investment Company Act. In addition, in meeting the 55%
requirement under the Investment Company Act, the Company intends to consider
privately issued certificates issued with respect to an underlying pool as to
which the Company holds all issued certificates as Qualifying Interests. If
the Commission, or its staff, adopts a contrary interpretation with respect to
such securities, the Company could be required to restructure its activities
to the extent its holdings of such privately issued certificates did not
comply with the interpretation. Such a restructuring could require the sale of
a substantial amount of privately issued certificates held by the Company at a
time it would not otherwise do so. Further, in order to insure that the
Company at all times continues to qualify for the above exemption from the
Investment Company Act, the Company may be required at times to adopt less
efficient methods of financing certain of its mortgage loans and investments
in mortgage-backed securities than would otherwise be the case and may be
precluded from acquiring certain types of such mortgage assets whose yield is
somewhat higher than the yield on assets that could be purchased in a manner
consistent with the exemption. The net effect of these factors will be to
lower at times the Company's net interest income, although the Company does
not expect the effect to be material. If the Company fails to qualify for
exemption from registration as an investment company, its ability to use
leverage would be substantially reduced, and it would be unable to conduct its
business as described herein. Any such failure to qualify for such exemption
could have a material adverse effect on the Company.
 
FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
DIRECTORS
 
  The Board of Directors, including a majority of the Unaffiliated Directors,
has established the investment policies and operating policies and strategies
set forth in this Prospectus as the investment policies and operating policies
and strategies of the Company. With respect to other matters, the Company may,
in the future, but currently has no present plans to, invest in the securities
of other REITs for the purpose of exercising control, offer securities in
exchange for property or offer to repurchase or otherwise reacquire its shares
or other securities. The Company may also, but does not currently intend to
underwrite the securities of other issuers. However, any of the policies,
strategies and activities referenced above or described in this Prospectus may
be modified or waived by the Board of Directors, subject in certain cases to
approval by a majority of the Unaffiliated Directors, without stockholder
consent.
 
EFFECT OF FUTURE OFFERINGS ON MARKET PRICE OF COMMON STOCK
 
  The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Stock, securities
convertible into its Common Stock, preferred stock or debt securities. The
actual or perceived effect of such offerings, the timing of which cannot be
predicted, may be the dilution of the book value or earnings per share of the
Common Stock outstanding, which may result in the reduction of the market
price of the Common Stock.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
  Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Stock. Of the 9,267,500 shares of Common Stock to
be outstanding after the Offering, 500,000 shares will be restricted in nature
and are not saleable pursuant to Rule 144 until November 1997 at the earliest.
The Company, ICII, SPTL and the Manager have agreed with the Underwriters
that, for a period of 120 days following the commencement of this Offering,
 
                                      20
<PAGE>
 
   
they will not sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares (other than pursuant to employee
plans) without the prior written consent of PaineWebber Incorporated. See
"Shares Eligible for Future Sale" and "Underwriting." Additionally, there are
outstanding stock options for 250,000 shares of Common Stock, which have been
granted at a per share exercise price of $11.25 per share, to executive
officers and Directors of the Company or of the Manager, none of which, except
in the event of a change of control of the Company, are exercisable until
November 1998; stock options for an additional 45,000 shares of Common Stock
have been granted to Unaffiliated Directors of the Company at a per share
exercise price of $13.00, all of which become exercisable on November 20,
1996; stock options for an additional 115,500 shares of Common Stock have been
granted to officers and employees of ICIFC at a per share exercise price of
$20.625, none of which, except in the event of a change of control of the
Company, is exercisable until September 1997; and an additional 389,500 shares
of Common Stock are reserved for future issuance pursuant to the Company's
Stock Option Plan. The Company intends to register under the Securities Act
shares reserved for issuance pursuant to the Stock Option Plan. See "Imperial
Credit Mortgage Holdings, Inc.--Stock Options."     
 
PREFERRED STOCK; RESTRICTIONS ON OWNERSHIP OF COMMON STOCK; POSSIBLE ANTI-
TAKEOVER EFFECT
   
  IMH's Articles of Incorporation and the amendments thereto (the "Charter")
authorize the Board of Directors to issue shares of Preferred Stock and to
classify or reclassify any unissued shares of Preferred Stock into one or more
classes or series of stock. The Preferred Stock may be issued from time to
time with such designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption as shall be determined by
the Board of Directors subject to the provisions of the Charter regarding
restrictions on transfer of stock. Preferred Stock is available for possible
future financing of, or acquisitions by, IMH and for general corporate
purposes without further stockholder authorization. Thus, the Board could
authorize the issuance of shares of Preferred Stock with terms and conditions
which could have the effect of delaying, deferring or preventing a change in
control of IMH by means of a merger, tender offer, proxy contest or otherwise.
The Preferred Stock, if issued, may have a preference on dividend payments
which could reduce the assets available to IMH to make distributions to the
common stockholders. As of the date hereof, no shares of Preferred Stock have
been issued. See "Description of Capital Stock."     
   
  In order for IMH to maintain its qualification as a REIT, not more than 50%
in value of the outstanding shares of IMH's capital stock, including Common
Stock, may be owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year (other than the first year for which the election
to be treated as a REIT has been made). Furthermore, after the first taxable
year for which a REIT election is made, IMH's shares of capital stock,
including Common Stock, must be held by a minimum of 100 persons for at least
335 days of a 12-month taxable year (or a proportionate part of a shorter
taxable year). In order to protect IMH against the risk of losing REIT status
due to a concentration of ownership among its stockholders, the Charter limits
actual or constructive ownership of the outstanding shares of Common Stock by
any person to 9.5% (the "Ownership Limit") (in value or in number of shares,
whichever is more restrictive) of the then outstanding shares of Common Stock.
See "Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer." Although the Board of Directors presently has no intention of doing
so (except as described below), the Board of Directors, in its sole
discretion, could waive the Ownership Limit with respect to a particular
person if it were satisfied, based upon the advice of tax counsel or
otherwise, that ownership by such person in excess of the Ownership Limit
would not jeopardize IMH's status as a REIT. The Board of Directors may from
time to time increase or, subject to certain limitations, decrease the
Ownership Limit.     
 
  Actual or constructive ownership of shares of Common Stock in excess of the
Ownership Limit, or, with the consent of the Board of Directors, such other
limit, which would cause IMH not to qualify as a REIT, will cause the
violative transfer of ownership to be void with respect to the intended
transferee or owner as to that number of shares in excess of such limit, and
such shares will be automatically transferred to a trustee for the benefit of
a trust for the benefit of a charitable beneficiary. The trustee of such trust
shall sell such shares and
 
                                      21
<PAGE>
 
distribute the net proceeds generally as follows: the intended transferee
shall receive the lesser of (i) the price paid by the intended transferee for
such excess shares and (ii) the sales proceeds received by the trustee for
such excess shares. Any proceeds in excess of the amount distributable to the
intended transferee will be distributed to the charitable beneficiary. In
addition, shares of Common Stock held in trust shall be deemed to have been
offered for sale to IMH, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust and (ii) the Market Price (as defined below) on the date
IMH, or its designee, accepts such offer. IMH shall have the right to accept
such offer until the trustee has sold the shares held in the trust. Upon such
a sale to IMH, the interest of the charitable beneficiary in the shares sold
shall terminate and the trustee shall distribute the net proceeds of the sale
to the intended transferee. Also, such intended transferee shall have no right
to vote such shares or be entitled to dividends or other distributions with
respect to such shares. See "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer" for additional information regarding the
Ownership Limit.
   
  These provisions may inhibit market activity and the resulting opportunity
for IMH's stockholders to receive a premium for their shares that might
otherwise exist if any person were to attempt to assemble a block of shares of
Common Stock in excess of the number of shares permitted under the Charter.
Such provisions also may make IMH an unsuitable investment vehicle for any
person seeking to obtain ownership of more than 9.5% of the outstanding shares
of Common Stock.     
   
  In addition, certain provisions of the Maryland General Corporation Law
("MGCL") and of IMH's Charter and Bylaws may also have the effect of delaying,
deferring or preventing a change in control of the Company. See "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws."     
 
                                      22
<PAGE>
 
                                  THE COMPANY
 
  IMH was incorporated in the State of Maryland on August 28, 1995. The
Company operates in a manner intended to permit IMH to be taxed as a REIT for
federal income tax purposes. The Company generates income for distribution to
its stockholders primarily from the net interest income derived from its
investments classified as Qualified REIT Assets and from its Conduit
Operations and Warehouse Lending Operations. As a result of its REIT status,
IMH generally is not subject to federal income tax on net income that is
currently distributed to its stockholders, thereby substantially eliminating
the "double taxation" that generally results when a corporation earns income
and distributes that income to stockholders in the form of dividends. ICIFC is
not consolidated with IMH for accounting purposes because IMH does not own any
of ICIFC's voting common stock and IMH does not control ICIFC. All taxable
income of ICIFC is subject to federal and state income taxes, where
applicable. See "Federal Income Tax Considerations--Other Tax Consequences."
 
  The principal executive offices of the Company are located at 20371 Irvine
Avenue, Santa Ana Heights, California 92707, telephone (714) 556-0122.
 
  The Manager, ICAI, oversees the day-to-day operations of the Company,
subject to the supervision of the Company's Board of Directors. The Manager is
involved in three primary activities: (1) asset-liability management--the
analysis and oversight of the acquisition, financing and disposition of
Company assets; (2) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; and (3) operations management--primarily the oversight of IMH's
operating subsidiaries. The Manager employs personnel who have significant
experience in mortgage finance and in the purchase and administration of
mortgage assets. See "Imperial Credit Advisors, Inc.--Management Agreement."
 
                                USE OF PROCEEDS
   
  The net proceeds of this Offering to the Company are estimated to be $50.6
million (or $58.3 million if the Underwriters' over-allotment option is
exercised in full) assuming a public offering price of $21.75 after deducting
estimated offering expenses and underwriting discounts and commissions. It is
expected that approximately 70% and 20% of such proceeds will be used to
provide funding for the Company's Long-Term Investment Operations and its
Warehouse Lending Operations, respectively. The balance of such proceeds will
be used for working capital and general corporate purposes. Pending these
uses, the proceeds may be invested temporarily to the extent consistent with
the REIT provisions of the Code.     
 
  The Company anticipates that it will fully invest its net proceeds of this
Offering in mortgage loans, mortgage-backed securities and finance receivables
within 90 days after completion of this Offering. The Company has not
specifically identified any mortgage loans, mortgage-backed securities or
finance receivables in which to invest its proceeds of this Offering.
 
                          PRICE RANGE OF COMMON STOCK
 
  The Company's Common Stock is listed on the AMEX under the symbol IMH. The
following table sets forth for the periods indicated the high and low sale
prices for the Common Stock as reported by the AMEX.
 
<TABLE>   
<CAPTION>
                                                                    HIGH   LOW
                                                                   ------ ------
<S>                                                                <C>    <C>
1995
- ----
Fourth Quarter (from November 20, 1995)........................... $13.25 $12.00

1996
- ----
First Quarter..................................................... $15.38 $12.88
Second Quarter....................................................  17.13  14.75
Third Quarter.....................................................  21.50  15.00
Fourth Quarter (through October 31, 1996).........................  22.88  20.38
</TABLE>    
   
  On October 31, 1996, the last reported sale price of the Common Stock on the
AMEX was $21.75 per share. As of October 24, 1996, there were approximately
141 holders of record of the Company's Common Stock.     
 
                                      23
<PAGE>
 
                       DIVIDEND POLICY AND DISTRIBUTIONS
 
  To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which may
not necessarily equal net income as calculated in accordance with GAAP),
determined without regard to the deduction for dividends paid and excluding
any net capital gains. IMH declares regular quarterly dividend distributions.
Any taxable income remaining after the distribution of the regular quarterly
or other dividends will be distributed annually on or prior to the date of the
first regular quarterly dividends payment date of the following taxable year.
The dividend policy is subject to revision at the discretion of the Board of
Directors. All distributions in excess of those required for IMH to maintain
REIT status will be made by IMH at the discretion of the Board of Directors
and will depend on the taxable earnings of IMH, the financial condition of IMH
and such other factors as the Board of Directors deems relevant. The Board of
Directors has not established a minimum distribution level. The following
table sets forth the dividends paid or to expected be paid by IMH:
 
<TABLE>
<CAPTION>
                                                                      PER SHARE
                                                      STOCKHOLDER     DIVIDEND
   PERIOD COVERED                                     RECORD DATE      AMOUNT
   --------------                                  ------------------ ---------
   <S>                                             <C>                <C>
   November 30, 1995 through December 31, 1995(1)  January 26, 1996     $0.08
   Quarter ended March 31, 1996                    April 24, 1996       $0.39
   Quarter ended June 30, 1996                     June 13, 1996        $0.45
   Quarter ended September 30, 1996                September 30, 1996   $0.52
   Special Dividend(2)                             November 15, 1996     (2)
</TABLE>
- --------
(1) IMH commenced operations on November 20, 1995.
 
(2) The Board of Directors of IMH authorized a special dividend payable to
    stockholders of record on November 15, 1996. Purchasers of Common Stock in
    this Offering will therefore not be entitled to receive this special
    dividend. The amount of special dividend will be determined by the Board
    of Directors prior to the record date and calculated to distribute excess
    taxable income not previously distributed by IMH as dividends, in order to
    comply with REIT qualification requirements. The special dividend should
    not be interpreted as a recurring dividend nor a dividend in lieu of IMH's
    regular dividend for the quarter ending December 31, 1996.
 
  Distributions to stockholders will generally be taxable as ordinary income,
although a portion of such distributions may be designated by IMH as capital
gain or may constitute a tax-free return of capital. IMH will annually furnish
to each of its stockholders a statement setting forth distributions paid
during the preceding year and their characterization as ordinary income,
capital gains or return of capital. For a discussion of the federal income tax
treatment of distributions by IMH, see "Federal Income Tax Considerations."
 
                                      24
<PAGE>
 
                                CAPITALIZATION
   
  The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to give effect to the issuance of 2,500,000
shares of Common Stock offered by the Company hereby at an assumed public
offering price of $21.75 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."     
 
<TABLE>   
<CAPTION>
                                                         SEPTEMBER 30, 1996
                                                      -------------------------
                                                                      AS
                                                       ACTUAL   ADJUSTED (1)(2)
                                                      --------  ---------------
                                                           (IN THOUSANDS)
<S>                                                   <C>       <C>
CMO borrowings....................................... $517,875     $517,875
Reverse repurchase agreements........................ $191,129     $191,129
Stockholders' equity:
  Preferred Stock, $.01 par value
   10,000,000 shares authorized; no shares issued and
   outstanding actual and as adjusted................      --           --
  Common Stock, $.01 par value
   50,000,000 shares authorized; 6,767,500 shares
   issued and outstanding actual; 9,267,500 shares as
   adjusted..........................................       68           93
  Additional paid-in capital.........................   81,947      132,556
  Investment securities valuation allowance..........   (1,108)      (1,108)
  Cumulative dividends declared......................   (7,429)      (7,429)
  Retained earnings..................................    7,709        7,709
                                                      --------     --------
    Total stockholders' equity.......................   81,187      131,821
                                                      --------     --------
    Total capitalization............................. $790,191     $840,825
                                                      ========     ========
</TABLE>    
- --------
(1) After deducting estimated underwriting discounts and commissions and
    estimated offering expenses of $750,000 payable by the Company, and
    assuming no exercise of the Underwriters' over-allotment option to
    purchase up to an additional 375,000 shares of Common Stock.
   
(2) Does not include 800,000 shares reserved for issuance pursuant to the
    Company's Stock Option Plan, of which options to acquire 250,000 shares
    are outstanding at a per share exercise price of $11.25, options to
    acquire 45,000 shares are outstanding at a per share exercise price of
    $13.00, and options to acquire 115,500 shares are outstanding at a per
    share exercise price of $20.625.     
 
                                      25
<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The following selected consolidated statement of operations data for each of
the years in the three-year period ended December 31, 1995 and the
consolidated balance sheet data as of December 31, 1995 and 1994 were derived
from the Company's and ICIFC's financial statements audited by KPMG Peat
Marwick LLP ("KPMG"), independent auditors, whose reports with respect thereto
appear elsewhere herein. The selected consolidated statement of operations
data for the year ended December 31, 1992 and the selected consolidated
balance sheet data as of December 31, 1993 were derived from the combined
financial statements of the Company and ICIFC, audited by KPMG. The selected
consolidated balance sheet data as of December 31, 1992 was derived from the
unaudited financial statements of the Company and ICIFC. Such selected
financial data should be read in conjunction with those financial statements
and the notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" also included elsewhere herein.
The following selected financial data for the nine month periods ended
September 30, 1996 and 1995 were derived from the unaudited financial
statements of the Company and ICIFC and include adjustments, consisting only
of normal recurring adjustments, which management considers necessary for a
fair presentation of such financial information for those periods. Results for
the nine months ended September 30, 1996 are not necessarily indicative of
results for the year ending December 31, 1996.
 
  As discussed further in the notes to the Company's financial statements,
Pre-Contribution Transaction (as defined below), the Company's financial
statements were prepared based upon the historical operations of IWLG, as a
division of SPTL, and include the Company's equity interest in ICIFC, as a
division of ICII. Since IWLG's operations began late in December of 1991, the
selected financial data begins with 1992. ICIFC selected financial data also
begins with 1992. Prior to 1992, operations of ICIFC were not maintained
separate from the operations of ICII. Since the Company believes the
operations of ICIFC prior to 1992 are not material, 1991 statement of
operations and balance sheet data are not presented. Mortgage loan origination
volume of ICIFC for the year ended December 31, 1991 was approximately $178
million, and ICIFC's servicing portfolio totaled $528 million at December 31,
1991.
 
                                      26
<PAGE>
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                 NINE MONTHS
                             ENDED SEPTEMBER 30,    YEAR ENDED DECEMBER 31,
                             -------------------   ---------------------------
                                1996      1995      1995   1994  1993    1992
                             ---------- ---------  ------  ---- ------  ------
<S>                          <C>        <C>        <C>     <C>  <C>     <C>
STATEMENT OF OPERATIONS
 DATA:
Revenues:
  Interest income........... $   44,338 $     785  $2,851  $292 $  767  $  685
  Equity in net income of
   ICI Funding Corporation..        719     1,118   1,489   532  4,192   1,254
  Fee income................        606       166     244    83    320     205
                             ---------- ---------  ------  ---- ------  ------
                                 45,663     2,069   4,584   907  5,279   2,144
                             ---------- ---------  ------  ---- ------  ------
Expenses:
  Interest on borrowings
   from reverse-repurchase
   agreements...............     31,372       --    1,116   --     --      --
  Interest on borrowings
   from SPTL................        --        423     599   127    334     377
  Provision for loan losses.      3,739       388     488    95    --      --
  Advisory fee..............      2,157       --       38   --     --      --
  General and administrative
   expense..................      1,001       120     209   225    197     103
                             ---------- ---------  ------  ---- ------  ------
                                 38,269       931   2,450   447    531     480
                             ---------- ---------  ------  ---- ------  ------
Income before income taxes..      7,394     1,138   2,134   460  4,748   1,664
Income (taxes) benefit......        --         (8)    (76)   30   (234)   (172)
                             ---------- ---------  ------  ---- ------  ------
    Net income.............. $    7,394 $   1,130  $2,058  $490 $4,514  $1,492
                             ========== =========  ======  ==== ======  ======
    Net income per share.... $     1.40       --   $ 0.07   --     --      --
                             ========== =========  ======  ==== ======  ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                               AT SEPTEMBER 30, -------------------------------
                                     1996         1995    1994   1993    1992
                               ---------------- -------- ------ ------- -------
<S>                            <C>              <C>      <C>    <C>     <C>
BALANCE SHEET DATA:
Total assets..................     $795,442     $613,688 $9,365 $13,591 $10,287
Mortgage loans held for
 investment and CMO
 collateral...................      545,451          --     --      --      --
Finance receivables...........      183,427      583,021  3,120   8,135   9,022
Investment in ICI Funding
 Corporation..................        9,712          866  6,335   5,446   1,254
Borrowings from SPTL..........          --           --   2,511   7,585   8,785
CMO borrowings................      517,875          --     --      --      --
Borrowings on reverse-
 repurchase agreements........      191,129      567,727    --      --      --
Total stockholders' equity....       81,187       45,236  6,853   6,006   1,492
</TABLE>

 
                                       27
<PAGE>
 
                            ICI FUNDING CORPORATION
                     (IN THOUSANDS, EXCEPT OPERATING DATA)
 
<TABLE>
<CAPTION>
                             NINE MONTHS
                         ENDED SEPTEMBER 30,       YEAR ENDED DECEMBER 31,
                         ---------------------  -----------------------------------
                            1996       1995      1995     1994     1993       1992
                         ----------  ---------  -------  -------  -------    ------
<S>                      <C>         <C>        <C>      <C>      <C>        <C>
INCOME STATEMENT DATA:
Revenues:
  Interest income....... $   26,535  $  --      $ 1,249  $   --   $   --     $  --
  Gain on sale of loans.      5,555      2,695    4,135    2,291    5,859     1,155
  Loan servicing income.        622      4,196    5,159    4,043    1,377     1,131
  Gain on sale of
   servicing rights.....        --         370      370    4,188    5,332     2,135
                         ----------  ---------  -------  -------  -------    ------
                             32,712      7,261   10,913   10,522   12,568     4,421
                         ----------  ---------  -------  -------  -------    ------
Expenses:
  Interest on
   borrowings...........     25,557        407    1,785      538      127       --
  General and
   administrative
   expense..............      4,875      2,837    3,663    6,333    4,507     1,988
  Provision for loan
   losses...............        728        --       --       655      175       249
  Amortization of
   mortgage servicing
   rights...............        286      2,070    2,892    2,070      459       --
                         ----------  ---------  -------  -------  -------    ------
                             31,446      5,314    8,340    9,596    5,268     2,237
Income before income
 taxes..................      1,266      1,947    2,573      926    7,300     2,184
Income taxes............       (540)      (818)  (1,069)    (389)  (3,066)     (917)
                         ----------  ---------  -------  -------  -------    ------
    Net income.......... $      726  $   1,129  $ 1,504  $   537  $ 4,234    $1,267
                         ==========  =========  =======  =======  =======    ======
OPERATING DATA (IN
 MILLIONS):
Mortgage loan
 acquisitions (volume).. $    1,176  $     472  $ 1,133  $ 1,726  $ 2,149(1) $  929(1)
Servicing portfolio at
 period-end.............      1,174      2,030      512    1,868      950       623
</TABLE>
 
<TABLE>
<CAPTION>
                                                       AT DECEMBER 31,
                              AT SEPTEMBER 30, --------------------------------
                                    1996         1995    1994    1993    1992
                              ---------------- -------- ------- ------- -------
<S>                           <C>              <C>      <C>     <C>     <C>
BALANCE SHEET DATA:
Total assets................      $186,144     $552,631 $12,097 $10,158 $   137
Mortgage loans held for
 sale, net..................       171,704      544,275     --      --      --
Mortgage servicing rights...         7,537          --   11,453   9,551     --
Borrowings (receivable) from
 ICII.......................           --           --    5,698   4,657  (1,129)
Borrowings from IWLG........       168,990      550,291     --      --      --
Total shareholders' equity..         9,810          875   6,399   5,501   1,267
</TABLE>
- --------
(1) Represents principal amounts of mortgage loans purchased, excluding
    premiums and discounts.

                                       28
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following section, in "Risk
Factors" and elsewhere in this Prospectus. The following discussion should be
read in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
 
GENERAL
 
  IMH's principal sources of net income are (1) net income from its Long-Term
Investment Operations, (2) net income from its Warehouse Lending Operations,
and (3) equity in net income of the Conduit Operations. The net income of the
Conduit Operations is fully subject to federal and state income taxes. The
principal source of income from IMH's Long-Term Investment Operations is net
interest income, which is the net spread between interest earned on mortgage
loans and securities held for investment and the interest costs associated
with the borrowings used to finance such loans and securities, including CMO
debt. The principal sources of income from the Warehouse Lending Operations
are net interest income, which is the net spread between interest earned on
warehouse loans and the interest costs associated with the borrowings used to
finance such loans, and the fee income received from the borrowers in
connection with such loans. The principal sources of income from ICIFC are
gains recognized on the sale of mortgage loans and securities, net interest
income earned on loans purchased by ICIFC pending their securitization or
resale, servicing fees, commitment fees and processing fees.
 
 THE CONTRIBUTION TRANSACTION
 
  On November 20, 1995, ICII contributed to ICIFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations,
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million on November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the non-voting preferred
stock of ICIFC. Simultaneously, on November 20, 1995, in exchange for 500,000
shares of Common Stock, (i) ICII contributed to IMH all of the outstanding
non-voting preferred stock of ICIFC, which represents 99% of the economic
interest in ICIFC, (ii) SPTL contributed to IMH certain of the operating
assets and certain customer lists of SPTL's warehouse lending division, and
(iii) ICII and SPTL executed a Non-Compete Agreement and a Right of First
Refusal Agreement, each having a term of two years from November 20, 1995. Of
the 500,000 shares of Common Stock issued by IMH pursuant to the Contribution
Transaction, 450,000 shares were issued to ICII and 50,000 shares were issued
to SPTL. All of the outstanding shares of common stock of ICIFC were retained
by ICII. Lastly, IMH contributed to IWLG all of the aforementioned operating
assets of SPTL's warehouse lending operations contributed to it in exchange
for shares representing 100% of the common stock of IWLG thereby forming it as
a wholly owned subsidiary. On November 20, 1995, the net tangible book value
of the assets contributed pursuant to the Contribution Transaction was
$525,000. ICII and SPTL retained all other assets and liabilities related to
contributed operations, which at November 20, 1995 consisted mostly of $11.7
million of MSRs, $22.4 million of finance receivables and $26.6 million in
advances made by ICII and SPTL to fund mortgage conduit loan acquisitions and
to fund finance receivables, respectively.
 
  References to the Pre-Contribution Transaction period refer to the periods
prior to November 20, 1995. References to the Post-Contribution Transaction
period refer to periods after November 20, 1995. References to financial
information of IMH Post-Contribution Transaction reflect the financial
operations of IMH and its subsidiaries, IWLG and IMH Assets, and IMH's equity
interest in ICIFC. References to financial information of IMH Pre-Contribution
Transaction reflect the pro forma financial data of IMH's equity interest in
SPTL's warehouse lending operations and ICII's mortgage conduit operations
Pre-Contribution Transaction. References to financial information of ICIFC
reflect the financial data of ICIFC Post-Contribution Transaction and the pro
forma financial information of ICII's mortgage conduit operation Pre-
Contribution Transaction.
 
                                      29
<PAGE>
 
  As discussed further in the Notes to ICIFC's financial statements, the
results of operations of ICIFC, of which 99% of the economic interest is owned
by IMH, are included in the results of operations for IMH as "Equity in net
income of ICI Funding Corporation." For Pre-Contribution Transaction, the
financial statements included elsewhere herein reflect management's estimate
of the level of previous capital and the amounts of interest charges and
general and administrative expense and taxes that ICII's mortgage conduit
operations would have incurred had it operated as an entity separate from
ICII.
 
 HISTORICAL TRENDS
 
  ICIFC's mortgage loan acquisitions decreased from $1.7 billion in 1994 to
$1.1 billion in 1995, which included $585.9 million in mortgage loans acquired
from ICII and its affiliates Post-Contribution Transaction. Management
attributes this decrease in mortgage loan acquisitions to the overall decrease
in mortgage loan originations throughout the mortgage industry as a result of
increased interest rates during 1995. In addition, the decrease in mortgage
loan acquisitions resulted from ICIFC's refocus from the conforming to the
non-conforming mortgage loan market and increased competition in such non-
conforming market. ICIFC was also adversely affected by the increase in
interest rates during 1994, resulting in a 20% decline in mortgage
acquisitions in 1994 to $1.7 billion from $2.1 billion acquired in 1993. The
aforementioned decline in mortgage acquisitions resulted in higher operating
costs as a percentage of acquisitions, despite ICIFC's efforts to reduce
excess production capacity through 1994 and 1995.
 
  In an effort to increase profitability, ICIFC reduced operating expenses in
1994 and 1995, primarily through a reduction in personnel. At December 31,
1995, ICIFC had 60 employees, a 15% decrease from 71 employees at December 31,
1994. At December 31, 1994, the conduit operations of ICII employed 71
employees, a 57% decrease from 167 employees at December 31, 1993. ICIFC
continues to assess its work force in order to properly match its loan
acquisition capacity to current market demands. In 1995, ICIFC also emphasized
the acquisition of higher margin non-conforming mortgage loan products which
provided a higher return than conforming mortgage loans.
 
  During the nine months ended September 30, 1996, ICIFC's mortgage loan
acquisitions increased 149% to $1.2 billion as compared to $472.4 million for
the same period in 1995. Excluding the acquisition of mortgage loans from ICII
or its affiliated mortgage banking operations, ICIFC's mortgage loan
acquisitions increased 103% to $957.3 million in the first nine months of 1996
as compared to $472.4 million for the same period in 1995. The increase in
mortgage loan acquisitions for the nine-month period ended September 30, 1996
as compared to the same period in 1995 was primarily the result of the
Company's increased marketing and sales efforts subsequent to the Initial
Public Offering, increased concentration on identifying and servicing
productive conduit sellers under master commitment programs, and significantly
increased sales activity from two conduit sellers affiliated with ICII. In the
second quarter of 1996, the two conduit sellers were divested from ICII. ICIFC
has and expects to continue to acquire loans from these mortgage banking
entities. In conjunction with the increase in flow (loan-by-loan)
acquisitions, as opposed to bulk loan acquisitions, subsequent to the
Contribution Transaction, the Company has added additional personnel. At
September 30, 1996, ICIFC employed 91 employees, an increase of 250% from 26
employees at September 30, 1995.
 
 ACCOUNTING FOR SERVICING RIGHTS
 
  When ICIFC purchases loans that include the associated servicing rights, the
allocated price paid for the servicing rights, net of amortization based on
assumed prepayment rates, is reflected on its financial statements as MSRs.
 
  On May 12, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65.
ICIFC elected to adopt this standard retroactive to January 1, 1995. SFAS No.
122 prohibits retroactive application to years prior to 1995.
 
 
                                      30
<PAGE>
 
  SFAS No. 122 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair
value relative to the loan as a whole. To determine the fair value of the
servicing rights created, ICIFC uses a valuation model that calculates the
present value of future net servicing revenues to determine the fair value of
the servicing rights. In using this valuation method, ICIFC incorporates
assumptions that it believes market participants would use in estimating
future net servicing income which include estimates of the cost of servicing,
an inflation rate, ancillary income per loan, a prepayment rate, a default
rate and a market discount rate.
 
  ICIFC determines servicing value impairment by disaggregating its mortgage
conduit operations' servicing portfolio into its predominant risk
characteristics. ICIFC determines those risk characteristics to be loan
program type and interest rate. These segments of the portfolio are then
evaluated, using market prices under comparable servicing sale contracts, when
available, or alternatively using the same model as was used to originally
determine the fair value at acquisition, using current assumptions at the end
of the quarter. The calculated value is then compared to the capitalized
recorded value of each loan type and interest rate segment to determine if a
valuation allowance is required. At September 30, 1996, ICIFC had capitalized
$7.5 million of MSRs.
 
  MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs'
valuation allowance. The rate of prepayment of loans is affected by a variety
of economic and other factors, including prevailing interest rates and the
availability of alternative financing. The effect of those factors on loan
prepayment rates may vary depending on the particular type of loan. Estimates
of prepayment rates are made based on management's expectations of future
prepayment rates, which are based, in part, on the historical rate of
prepayment of ICIFC's loans, and other considerations. There can be no
assurance of the accuracy of management's prepayments estimates. If actual
prepayments with respect to loans serviced occur more quickly than were
projected at the time such loans were sold, the carrying value of the MSRs may
have to be reduced through a provision recorded to increase the MSRs'
valuation allowance in the period the fair value declined below the MSRs'
carrying value. If actual prepayments with respect to loans occur more slowly
than estimated, the carrying value of MSRs would not increase, although total
income would exceed previously estimated amounts and the related valuation
allowances, if any, could be unnecessary.
 
 COMMITMENTS AND CONTINGENCIES
 
  As part of its marketing strategy, ICIFC establishes mortgage loan purchase
commitments ("Master Commitments") with sellers that, subject to certain
conditions, entitle the seller to sell to ICIFC and obligate ICIFC to purchase
a specified dollar amount of mortgage loans over a period generally ranging
from six months to one year. As of September 30, 1996 and December 31, 1995,
ICIFC had outstanding short-term Master Commitments with 62 and 18 sellers,
respectively, to purchase mortgage loans in the aggregate principal amount of
$774.0 million and $241.0 million, respectively, over periods generally
ranging from six months to one year, of which $79.9 million and $35.7 million,
respectively, had been purchased or committed to be purchased pursuant to
rate-locks (as defined below).
 
  Sellers that enter into Master Commitments with ICIFC sell mortgage loans to
ICIFC by executing individual, bulk or other rate-locks (each, a "rate-lock").
Each rate-lock, in conjunction with the related Master Commitment, specifies
the terms of the related sale, including the quantity and price of the
mortgage loans or the formula by which the price is determined, the rate-lock
type and the delivery requirements. The up-front fee paid by a seller to ICIFC
to obtain a Master Commitment on a mandatory delivery basis is often refunded
pro rata as the seller delivers loans pursuant to rate-locks.
 
                                      31
<PAGE>
 
RESULTS OF OPERATIONS; IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
 NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
 
  Net income for the nine months ended September 30, 1996 increased to $7.4
million as compared to $1.1 million for the same period in 1995. Net income
per share for the nine months ended September 30, 1996 was $1.40.
   
  Revenues for the nine months ended September 30, 1996 increased to $45.7
million as compared to $2.1 million for the same period in 1995, primarily as
a result of an increase in interest income from finance receivables and
secondarily as a result of interest income on the Company's mortgage loans
held as CMO collateral and investment securities available for sale. Average
finance receivables outstanding for the nine months ended September 30, 1996
increased to $439.8 million as compared to $9.9 million for the same period in
1995, primarily as a result of the Company providing warehouse facilities to
ICIFC subsequent to the Initial Public Offering. At September 30, 1996, ICIFC
accounted for 92% of the Company's total gross finance receivables
outstanding. Average CMO collateral outstanding for the nine months ended
September 30, 1996 increased to $199.8 million as compared to zero for the
same period in 1995, as a result of the Company financing $567.0 million of
mortgage loans held in its investment portfolio through two CMO structures
created during that period. Lastly, the Company invested in investment
securities available for sale with an average balance of $31.3 million for the
nine months ended September 30, 1996. No such investment securities portfolio
existed prior to the Initial Public Offering. At September 30, 1996, finance
receivables decreased to $183.4 million from $583.0 million at December 31,
1995 due to the sale during the first nine months of 1996 of a substantial
amount of the mortgage loans held for sale by ICIFC at December 31, 1995. Such
loan sales were made to the Long-Term Investment Operations or to other
investors, and the proceeds reduced ICIFC's borrowings from IWLG. The Company
had total investment securities available for sale and cash and cash
equivalents of $52.9 million at September 30, 1996 as compared to none at
September 30, 1995.     
   
  Expenses for the nine months ended September 30, 1996 increased to $38.3
million as compared to $931,000 for the same period in 1995, primarily as a
result of (1) an increase in borrowings associated with the financing of the
Company's finance receivables, CMO collateral and investment securities
available for sale, (2) an increase in the provision for loan losses and (3)
the payment of fees associated with the Management Agreement. Interest expense
from reverse-repurchase borrowings, CMO borrowings or borrowings from SPTL
increased to $31.4 million for the nine months ended September 30, 1996 as
compared to $423,000 for the same period in 1995. The increase in interest
expense was the result of increased borrowings to finance the growth in the
Company's interest earning assets as discussed above. The provision for loan
losses increased to $3.7 million for the nine months ended September 30, 1996
as compared to $388,000 for the same period in 1995 as a result of
establishing an allowance for credit losses relating to the $544.2 million of
CMO collateral and $183.4 million of finance receivables at September 30,
1996. The provision in 1995 was the result of a write-off of a customer's
outstanding balance on a finance receivable. While the Company believes that
it has adequately provided for any future credit losses, the Company may have
to add to its loan loss allowance based upon actual loan loss experience or an
increase in the Company's investments. Management fees under the Management
Agreement were $2.2 million for the nine months ended September 30, 1996. No
such fees were paid during the same period in 1995, which was prior to the
Contribution Transaction.     
 
 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
  Net income, including the equity interest in the net income of ICIFC,
increased 320% to $2.1 million in 1995 from $490,000 in 1994. The increase in
net income was primarily the result of the increase in the equity interest in
the net income of ICIFC, the increase in IWLG's finance receivables
outstanding during 1995, and to a lesser extent, the purchase of an investment
portfolio, Post-Contribution Transaction. Excluding the equity interest in the
net income of ICIFC, net income in 1995 was $569,000 as compared to a loss of
$42,000 in 1994. Net income per share for 1995 Post-Contribution Transaction
was $0.07.
 
 
                                      32
<PAGE>
 
  Revenues in 1995 increased 405% to $4.6 million as compared to $907,000 in
1994. Of the $4.6 million in 1995 revenue, $1.6 million was attributable to
the Post-Contribution Transaction entity. Such revenues primarily consisted of
interest income earned on the finance receivables, investments available for
sale, equipment lease payments, processing fee income and the equity interest
in ICIFC. The increase in revenues was primarily due to three factors: (1)
increased interest income earned on investments available for sale and a
higher outstanding balance of IWLG's finance receivables, (2) increased
profitability in the Conduit Operations as a result of cost savings and a
focus on higher margin mortgage products and (3) increased fee income as a
result of an increased number of transactions with IWLG's warehouse borrowers.
 
  Total interest income increased 874% to $2.9 million in 1995 as compared to
$293,000 in 1994. Interest income is primarily composed of interest earned on
IMH's investments and IWLG's outstanding finance receivables. The increase in
interest income was the result of the Company acquiring an investment
portfolio, Post-Contribution Transaction, and a substantial increase in the
average outstanding balance of IWLG's finance receivables. As a result of the
Initial Public Offering, the Company raised a net of $44.5 million of capital
to fund the Long-Term Investment Operations and to capitalize or fund the
Warehouse Lending Operations and Conduit Operations.
 
  With the capital raised in the Initial Public Offering, the Company acquired
four mortgage-backed securities at a carrying value of $17.4 million with a
weighted average yield of 11.2% at December 31, 1995. The mortgage-backed
securities ratings from one or more rating agencies range from investment
grade ("BBB") to non-investment grade ("B") quality. The mortgage loans
underlying the mortgage-backed securities are adjustable rate loans indexed
either to LIBOR or to the 11th District Cost of Funds. The Company also
acquired from Imperial Business Credit, Inc. ("IBC"), a subsidiary of ICII, a
subordinated interest in an equipment-lease receivable securitization with a
carrying value of $8.4 million at December 31, 1995. On May 31, 1996, IMH sold
the security back to IBC at no gain or loss. See "Certain Transactions."
 
  IWLG's average outstanding finance receivables increased 866% to $30.0
million for 1995 as compared to $3.1 million for 1994, which led to a
corresponding increase of 874% in interest income to $2.9 million in 1995 as
compared to $293,000 in 1994. IWLG's total finance receivable balances
outstanding at December 31, 1995 were $583.0 million, of which $550.3 million
represented balances outstanding from ICIFC. The increase in ICIFC's balances
were primarily the result of several bulk purchases from ICII and SPTL, in the
amount of $176.6 million and $332.0 million, respectively, of mortgage loans.
Pre-Contribution Transaction, ICIFC's mortgage loans held for sale and the
related income were retained on the books of ICII. Post-Contribution
Transaction, IWLG executed an agreement with ICIFC to provide warehouse lines
to fund the Conduit Operations. Lastly, equity in net income of ICIFC
increased 180% to $1.5 million in 1995 as compared to $532,000 in 1994. The
increase was due to factors as set forth in "--Results of Operations; ICI
Funding Corporation--Year Ended December 31, 1995 Compared to Year Ended
December 31, 1994."
 
  Expenses increased to $2.4 million in 1995 as compared to $447,000 in 1994.
The increase in expenses was primarily the result of increased interest on
borrowings Post-Contribution Transaction and a provision for finance
receivables charged to operations Pre-Contribution Transaction in 1995. The
increased interest on borrowings was the result of an increase in borrowings
associated with the funding of IWLG's finance receivables and IMH's investment
portfolio. As discussed previously, IWLG's average outstanding finance
receivables increased primarily as a result of borrowings by ICIFC in December
1995. Although interest expense increased 1,255% to $1.7 million in 1995 from
$127,000 in 1994, the increase was mainly Post-Contribution Transaction. The
increase in provision for finance receivables was primarily the result of
management's decision in 1995 to write off the outstanding balance of a
delinquent warehouse line. Approximately $388,000 of the charge-offs
represents the net outstanding balance on that committed line. As part of the
Contribution Transaction, these assets were retained, net of the allowance, by
SPTL. The remaining provision represents a Post-Contribution Transaction
general provision for loan losses. Expenses, other than interest on borrowings
and provision for finance receivables increased 9.8% to $247,000 in 1995 as
compared to $225,000 in 1994. Personnel expenses decreased 36.7% to $91,000 in
1995 as compared to $143,000 in 1994. Personnel expenses declined in 1995
primarily as a
 
                                      33
<PAGE>
 
result of staffing reductions made in late 1994 in the Warehouse Lending
Operations. The advisory fee, which became effective on November 20, 1995, was
$38,000 in 1995. There was no advisory fee in 1994. See "Certain
Transactions--Other Transactions--Management and Sub-Servicing Agreements."
 
 YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
 
  Net income in 1994 totaled $490,000, compared to $4.5 million in 1993. The
year-to-year decrease resulted primarily from a decrease in the equity
interest in the net income of ICIFC.
 
  Revenues, excluding the equity interest in ICIFC, for the year ended
December 31, 1994 decreased 66% to $375,000 as compared to $1.1 million for
1993. The Company's equity interest in the net income of ICIFC for the year
ended December 31, 1994 decreased to $532,000 from $4.2 million in 1993 due to
those factors set forth below in "--Results of Operations; ICI Funding
Corporation--Year Ended December 31, 1994 Compared to Year Ended December 31,
1993." The decrease in such revenues was the result of an industry-wide
decline in mortgage loan originations, a reduced number of transactions, and a
reduction in average outstanding balances and the number of committed lines of
credit outstanding.
 
  Expenses for the year ended December 31, 1994 decreased 16% to $447,000 as
compared to $531,000 for 1993. Total expenses for 1994 include a $95,000
provision for loan losses related to a warehouse lending agreement which had
been canceled, as discussed above. Personnel expenses increased 30% to
$143,000 for the year ended December 31, 1994 as compared to $110,000 for
1993. The increase in personnel expenses was the result of additional
personnel hired to process the growth in finance receivable transactions in
1993. Staffing reductions were made late in 1994 and were not fully reflected
in 1994 personnel expense levels.
 
RESULTS OF OPERATIONS; ICI FUNDING CORPORATION
 
 NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
 
  Net income for ICIFC for the nine months ended September 30, 1996 decreased
36% to $726,000 from $1.1 million for the same period in 1995.
 
  Revenues for the nine months ended September 30, 1996 increased to $32.7
million as compared to $7.3 million for the same period in 1995, as a result
of an increase in interest income from ICIFC's mortgage loans held for sale
and, to a lesser extent, an increase in gain on sale of loans, offset by a
reduction in loan servicing income. The increase in interest income for the
nine months ended September 30, 1996 was the result of ICIFC retaining
mortgage loans held for sale during the period. During the nine months ended
September 30, 1995, which was prior to the Contribution Transaction, all of
ICIFC's mortgage loans held for sale were retained on the books of ICII, and
all income derived from these loans was retained by ICII.
 
  Gain on sale of loans increased to $5.6 million for the nine months ended
September 30, 1996 as compared to $2.7 million for the same period in 1995, as
the result of securitizations of $658.2 million of fixed rate mortgage loans
and sales of $193.4 million of mortgage loans to others. During the nine
months ended September 30, 1996, gain on sale of non-conforming mortgage loans
generated greater income per loan than ICIFC earned on the sale of its
conforming loans during the first nine months of 1995. Any gains or losses on
the sale of loans to IMH are deferred and amortized over the life of the
loans. Total deferred gains as a result of sale of mortgage loans to IMH were
$2.4 million for the nine months ended September 30, 1996. Loan servicing
income decreased to $622,000 for the nine months ended September 30, 1996 as
compared to $4.2 million for the same period in 1995 as a result of ICII
retaining all mortgage servicing rights on loans previously purchased by ICIFC
which were in existence at November 20, 1995 as part of the Contribution
Transaction. Servicing income for the nine months ended September 30, 1996
relates to loan servicing rights generated only during the period subsequent
to November 20, 1995. Total loans serviced at September 30, 1996 were $1.2
billion as compared to $2.0 billion at September 30, 1995.
 
                                      34
<PAGE>
 
  Expenses for the nine months ended September 30, 1996 increased to $31.4
million as compared to $5.3 million for the same period in 1995 primarily as a
result of an increase in borrowings associated with the financing of ICIFC's
mortgage loans held for sale and, to a lesser extent, increases in the
provision for loan losses and personnel expense, offset by a reduction in
amortization of mortgage servicing rights. As noted above, prior to the
Contribution Transaction, ICIFC had no mortgage loans held for sale.
Subsequent to the Contribution Transaction, ICIFC entered into a warehouse
arrangement with IWLG to provide mortgage loan financing during the process of
ICIFC accumulating loans for sale and securitization. As a result of this
facility, ICIFC incurred $25.6 million in interest expense to finance its
mortgage loan acquisitions during the nine months ended September 30, 1996.
The increase in the provision for loan losses to $728,000 for the nine months
ended September 30, 1996, compared with no such provision in 1995, was the
result of management's decision to establish an allowance for estimated losses
related to the potential repurchase of previously sold loans that could result
from breaches of standard representations and warranties. Personnel expenses
increased to $3.5 million for the nine months ended September 30, 1996 as
compared to $1.2 million for the same period in 1995 primarily as a result of
ICIFC entering into employment agreements with senior management that became
effective on November 20, 1995 and the increase in personnel to process the
increased mortgage acquisitions during the nine months ending September 30,
1996 as compared to the same period in 1995. Prior to the Contribution
Transaction, ICIFC was allocated an apportionment of these individual salaries
by ICII. However, ICII retained a substantial portion of the costs associated
with the senior management of the Company prior to the Contribution
Transaction.
 
 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
  Net income for the year ended December 31, 1995 increased 180% to $1.5
million as compared to $537,000 for the same period in 1994. The increase is
primarily due to increased profitability on the sale of mortgage loans and
reduced personnel and operating expenses. Overall, profitability was lower in
1994 as a result of lower profits on the sale of servicing-retained fixed rate
loans and a decrease in the principal amount of mortgage loans sold servicing-
released. Gain on sale of loans consists primarily of gains recorded upon the
sale of mortgage loans, net of associated expenses, and to a lesser extent,
fees received for commitments to fund mortgage loans. Prior to the
Contribution Transaction, financial information presented herein does not
reflect the net interest income from the mortgage loans held for sale during
accumulation and subsequent sale or securitization as this income was retained
by ICII, which provided the funding for such loans. Post-Contribution
Transaction for 1995, ICIFC earned interest income on mortgage loans held for
sale.
 
  Revenues in 1995 increased 3.7% to $10.9 million as compared to $10.5
million in 1994. While total revenues did not materially change from year to
year, mortgage loan acquisitions declined 35% to $1.1 billion in 1995 as
compared to $1.7 billion in 1994. Total revenues remained consistent in 1995
as compared to 1994 due to increased profitability on the sale of loans,
interest earned on the loans while being held for sale or securitization and
loan servicing income, partially offset by a reduction in the amount of
servicing sold and the related gain on the sale of servicing rights.
 
  Gain on sale of loans increased 80% to $4.1 million in 1995 as compared to
$2.3 million in 1994. The increased profitability on the sale of loans for the
year ended December 31, 1995 was due to several factors. As interest rates
stabilized, the calculated values of ICIFC's acquired servicing rights
increased, resulting in an increased amount of servicing value capitalized,
with a corresponding increase in the profitability of loan sales.
Additionally, the overall interest rate environment in 1995 was less volatile
than in 1994, which did not expose ICIFC to the same degree of losses as the
operations experienced in 1994.
 
  ICIFC sold a larger percentage of its acquired loans into mortgage-backed
securities in 1995 as compared to 1994. During 1995, ICIFC, Pre-Contribution
Transaction, sold its LIBOR-based adjustable and fixed rate mortgage loans
into REMIC securities that generated gains in excess of what could have been
earned on whole loan sales. There were no such securitization gains in 1994.
The securitization and sale of ICIFC's LIBOR-based adjustable and fixed rate
loans in 1995 resulted in the creation of excess servicing assets that were
purchased, at fair value concurrent with the sale, from ICIFC by ICII, thereby
reducing intercompany borrowings from ICII
 
                                      35
<PAGE>
 
and any tax-related timing differences. The securitization gains resulted in
part from the allocation of amounts calculated using the present value of the
expected future revenue using prepayment assumptions, and estimated losses at
a market discount rate. The securitization gains created tax liabilities at
the time of sale based on taxable income (the tax liability is not necessarily
equal to the reported gain) equal to the present value gains calculated as
discussed above. This securitization method requires cash to finance the
related tax liability since the income is received over the life of the loans
and the tax is paid in the current year. ICIFC generated no gain on sale of
loans acquired during the Post-Contribution Transaction period through
December 31, 1995.
 
  Loan servicing income in 1995 increased 28% to $5.2 million as compared to
$4.0 million in 1994, primarily due to an increase in the average balance of
mortgage loans serviced during 1995, as compared to 1994. However, as part of
the Contribution Transaction, ICII retained all the assets of ICIFC except for
certain assets as described in the Contribution Agreement. ICII retained all
the MSRs; therefore, future loan servicing income will be substantially less
than in past periods until ICIFC builds its own loan servicing portfolio.
ICIFC generated no servicing income during the Post-Contribution Transaction
period through December 31, 1995.
 
  Gain on sale of servicing rights decreased 91% to $370,000 in 1995 as
compared to $4.2 million in 1994. The total principal balance of loans
underlying servicing sold was $76.3 million for 1995 as compared to $619.8
million for 1994. The decrease in profitability on the sale of servicing
rights was primarily the result of a higher percentage of the mortgage loans
serviced having capitalized MSRs for 1995 as compared to 1994. Historically,
the Company's incentive to sell mortgage servicing rights has been based on
cash flow and income purposes. Gain on the sale of servicing rights consists
of the total sales price of the bulk sale of servicing rights, net of related
MSRs. The decision to buy or sell servicing rights is based upon management's
assessment of the market for servicing rights and ICIFC's current and future
cash flow and income objectives. ICIFC generated no gain on sale of servicing
rights for the Post-Contribution Transaction through December 31, 1995.
 
  Total expenses decreased 13% in 1995 to $8.3 million as compared to $9.6
million in 1994. This decrease was primarily due to a decrease in personnel
and operational expenses. Expenses for 1995 decreased primarily as a result of
significant reductions in ICIFC's mortgage loan production and administrative
staff and related reductions in personnel and general and administrative
expenses, offset by $1.3 million of interest expenses on borrowings from IWLG.
Pre-Contribution Transaction, all net interest income was retained by ICII.
However, Post-Contribution Transaction, ICIFC financed its mortgage loan
acquisitions through IWLG and therefore earned and paid any interest income or
interest expense associated with these borrowings, respectively. Total
interest on borrowings from IWLG was $1.3 million or 16% of the total expenses
for 1995. Excluding this item, total expenses decreased 27% to $7.0 million in
1995 as compared to $9.6 million 1994. ICIFC reduced personnel expenses by 46%
to $1.6 million in 1995 as compared to $3.0 million in 1994. ICIFC attained
this reduction primarily by reducing staffing by 60% from December 31, 1994.
However, ICIFC continued to experience increased unit acquisition costs as a
result of lower loan acquisition volumes during the first half of 1995 until
staffing could be reduced to match current acquisitions. ICIFC expects that
personnel expenses should increase in 1996 as a percentage of revenue due to
amounts payable under the employment agreements that were in effect on the
date of the Initial Public Offering and the hiring of additional support
staff.
 
  Amortization of MSRs increased to $2.9 million in 1995 as compared to $2.1
million in 1994. The increase was primarily due to an increase in the average
outstanding balance of the mortgage servicing portfolio.
 
  Occupancy expense decreased 49% to $150,000 in 1995 as compared to $296,000
in 1994. The decrease in occupancy expense was primarily the result of the
reallocation of ICII's corporate personnel to occupy the unused space after
the downsizing of ICIFC's operations in 1994 and 1995. General and
administrative expenses, which include other general and administrative
expenses, professional services, telephone and other communications and data
processing, decreased 38% to $1.9 million in 1995 as compared to $3.1 million
in 1994. The decrease was the result of reduced loan acquisition volume and
reduced levels of ICIFC's personnel and related expenses. No provision for
loan losses was taken in 1995 compared to a $655,000 provision taken in 1994.
The provision in 1994 was the result of a default on an unsecured loan by one
of ICIFC's correspondents. Management does not intend to make unsecured loans
to its correspondents in the future.
 
                                      36
<PAGE>
 
 YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
 
  Net income in 1994 decreased 87% to $537,000 as compared to $4.2 million in
1993. The decrease in profitability was due to an increase in all expense
categories except professional services, resulting from the expansion of
ICII's mortgage conduit operations in 1993. Revenues for the year ended
December 31, 1994 decreased 16% to $10.5 million as compared to $12.6 million
for 1993. Gain on sale of loans decreased 61% to $2.3 million in 1994 as
compared to $5.9 million in 1993. The decrease was primarily the result of a
lower profitability on the sale of fixed rate loans sold servicing retained
and a decrease in the principal amount of mortgage loans sold servicing
released during 1994. Loan servicing income in 1994 increased 194% to $4.0
million as compared to $1.4 million in 1993. The increase in loan servicing
income was primarily due to a substantially higher average balance of loans
serviced. The servicing portfolio increased 97% to $1.9 billion at December
31, 1994 from $950.3 million at December 31, 1993. During 1994 and 1993,
ICII's mortgage conduit operations sold MSRs relating to $619.8 million and
$701.4 million principal amount of loans, respectively, resulting in pre-tax
gains of $4.2 million and $5.3 million, respectively. As interest rates
increased and prepayment rates decreased in 1994, the market value of ICII's
mortgage conduit operations' servicing portfolio increased, resulting in
higher sales prices and greater gains on sale of servicing.
 
  Expenses in 1994 increased 82% to $9.6 million from $5.3 million in 1993.
The increase in expenses was primarily due to increased levels of staffing
during the first half of 1994 as a result of the expansion of ICII's mortgage
conduit operations' activities in 1993. Personnel expenses increased 17% to
$3.0 million in 1994 as compared to $2.5 million in 1993. Amortization of MSRs
increased 351% to $2.1 million in 1994 as compared to $459,000 in 1993. The
increase was primarily due to a substantially higher average outstanding
balance of capitalized MSRs and an increase in amortization as a result of
mortgage loan prepayments. Amortization due to prepayments of mortgage loans
increased to $313,000 in 1994 as compared to $183,000 in 1993. Occupancy
expense increased 53% to $296,000 in 1994 as compared to $193,000 in 1993. The
increase reflects the costs associated with the expansion of ICII's mortgage
conduit operations' office late in 1993. General and administrative expenses
including other general and administrative expenses, professional services,
telephone and other communications and data processing, increased 72% to $3.1
million in 1994 as compared to $1.8 million in 1993. The increase was the
result of expenses associated with the expansion of the mortgage conduit
operations and installation of new data processing systems. During the latter
part of 1994, as interest rates increased, ICII's mortgage conduit operations
implemented cost containment and revenue enhancement programs to offset the
pressures of reduced loan acquisitions on earnings. In order to control costs,
the staffing was reduced by 57% at December 31, 1994 as compared to the level
at December 31, 1993. The provision for loan losses increased to $655,000 in
1994 as compared to $175,000 in 1993. The increase in the provision in 1994
was the result of a write down of an unsecured loan made to one of ICII's
mortgage conduit operations' correspondents as mentioned above.
 
  The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which was effective for fiscal
years beginning December 15, 1992 was adopted by ICII's mortgage conduit
operations on January 1, 1993 on a prospective basis. Implementation of SFAS
109 had no material impact on ICII's mortgage conduit operations' financial
position or results of operations for the year ended December 31, 1993.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's principal liquidity requirements result from the need to fund
the acquisition of mortgage loans held for sale by ICIFC, the investment in
mortgage loans and mortgage-backed securities by IMH, and the origination of
finance receivables by IWLG. Pre-Contribution Transaction, ICIFC was funded by
ICII through committed reverse repurchase agreements and capital
contributions. Historically, SPTL's warehouse lending operations was funded by
SPTL through deposits, other borrowings and equity. However, Post-Contribution
Transaction, the Long-Term Investment Operations, the Conduit Operations and
the Warehouse Lending Operations are funded by reverse repurchase agreements,
the sale of mortgage securities, the issuance of CMOs and the proceeds from
the issuance of common stock.
 
                                      37
<PAGE>
 
   
  During the nine months ended September 30, 1996 and 1995 and the years ended
December 31, 1995, 1994 and 1993, net cash provided by (used in) operating
activities was $5.5 million, $342,000, $(72,000), $58,000, and $313,000,
respectively. Net cash provided by operating activities for the nine months
ended September 30, 1996 and for the fiscal year 1995 decreased due to the
increase in accrued interest receivable as a result of increased finance
receivables and mortgage loans held for investment. IWLG's warehouse lending
activities affected net cash provided by operating activities more
significantly during the nine months ended September 30, 1996 than in prior
periods, as a result of more significant amounts of warehouse lending to ICIFC
subsequent to the Contribution Transaction. The Company retained an investment
portfolio of mortgage loans only subsequent to the Initial Public Offering,
and therefore these activities only affected net cash provided by operating
activities during the nine months ended September 30, 1996.     
 
  Net cash provided by (used in) investing activities for the nine months
ended September 30, 1996 and 1995 and the years ended December 31, 1995, 1994
and 1993 was $(177.1) million, $(15.3) million, $(629.1) million, $5.0
million, and $887,000, respectively. For the nine months ended September 30,
1995 and in fiscal 1995, net cash flows from investing activities decreased
due to the excess of fundings of finance receivables compared with repayments
of such receivables, primarily as a result of higher finance receivables due
from ICIFC, associated with ICIFC's greater mortgage loan acquisition volumes.
For the nine months ended September 30, 1996, fiscal 1994 and 1993, net cash
flows from investing activities increased due to higher repayments of finance
receivables than finance receivables funded. During the nine months ended
September 30, 1996, net cash flows from investing activities decreased due to
the Company's decision to create an investment portfolio of mortgage loans and
investment securities available for sale.
   
  For the nine months ended September 30, 1996 and 1995 and the years ended
December 31, 1995, 1994 and 1993, net cash provided by (used in) financing
activities was $174.4 million, $15.0 million, $631.5 million, $(5.1) million
and $(1.2) million, respectively. These net cash figures for the nine months
ended September 30, 1996 and the year ended December 31, 1995 were affected by
the Company's increased investment in CMO collateral and finance receivables,
thereby requiring it to raise additional cash to finance such CMO collateral
and finance receivables. Post-Contribution Transaction, such borrowings
consisted of reverse repurchase agreements and CMO borrowings, while Pre-
Contribution Transaction, such borrowings consisted of borrowings from SPTL.
    
  At September 30, 1996, the Company had $517.9 million of CMO borrowings used
to finance $544.2 million of CMO collateral in its mortgage loan investment
portfolio. The Company uses CMO borrowings to finance substantially all of its
mortgage loan investment portfolio as a means of eliminating certain risks
associated with reverse repurchase agreements (such as the potential need for
deposits of additional collateral) that are not present with CMO borrowings.
Terms of the CMO borrowings require that the mortgages be held by an
independent third party custodian, with the interest rate on the borrowings
ranging from 32 basis points to 50 basis points over one-month LIBOR. Equity
in the CMOs is established at the time the CMOs are issued at levels
sufficient to achieve desired credit ratings on the securities from the rating
agencies. Total credit loss exposure to the Company is limited to the equity
invested in the CMOs at any point in time.
   
  At September 30, 1996, the Company had a $250 million committed financing
facility as well as additional uncommitted facilities to provide financing for
the Company's three businesses. Subsequent to September 30, 1996, the Company
established an additional $100 million reverse repurchase facility. Terms of
the reverse repurchase agreements require that the mortgages be held by an
independent third party custodian, which gives the Company the ability to
borrow against the collateral as a percentage of the outstanding principal
balance. The borrowing rates quoted vary from 65 basis points to 100 basis
points over one-month LIBOR, depending on the type of collateral provided by
the Company. The margins on the reverse repurchase agreements are based on the
type of mortgage collateral used and generally range from 90% to 98% of the
fair market value of the collateral.     
 
  By September 30, 1996, the Company had utilized all of the net proceeds from
its Initial Public Offering and subsequent offering to provide funding for the
Warehouse Lending Operations and to increase its Long-Term
 
                                      38
<PAGE>
 
Investment Operations and its Conduit Operations. Management believes that
cash flow from operations and the aforementioned potential financing
arrangements is sufficient to meet the current liquidity needs of the three
businesses.
 
INFLATION
 
  The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased costs
of the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company's operations are monetary in nature. As
a result, interest rates have a greater impact on the Company's operations'
performance than do the effects of general levels of inflation. Inflation
affects the Company's operations primarily through its effect on interest
rates, since interest rates normally increase during periods of high inflation
and decrease during periods of low inflation. During periods of increasing
interest rates, demand for mortgage loans and a borrower's ability to qualify
for mortgage financing in a purchase transaction may be adversely affected.
 
                                      39
<PAGE>
 
                                   BUSINESS
 
  The following Business section contains forward-looking statements that
inherently involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk Factors"
and elsewhere in this Prospectus.
 
GENERAL
 
  IMH is a specialty finance company which, together with its subsidiaries and
related companies, operates three businesses: (1) the Long-Term Investment
Operations, (2) the Conduit Operations and (3) the Warehouse Lending
Operations. The Long-Term Investment Operations invests primarily in non-
conforming residential mortgage loans and securities backed by such loans. The
Conduit Operations purchases and sells or securitizes primarily non-conforming
mortgage loans, and the Warehouse Lending Operations provides warehouse and
repurchase financing to originators of mortgage loans. The latter two
businesses include certain ongoing operations contributed to the Company in
1995 by ICII. IMH is organized as a REIT for federal income tax purposes,
which generally allows it to pass through qualified earnings to stockholders
without federal income tax at the corporate level.
 
  Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests in
such loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as FNMA and FHLMC. Such loans
generally provide higher yields than conforming loans. The principal
differences between conforming loans and non-conforming loans include the
applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the
type of properties securing the mortgage loans, the loan sizes and the
mortgagors' occupancy status with respect to the mortgaged properties. Second
mortgage loans are higher yielding mortgage loans secured by a second lien of
the property and made to borrowers owning single-family homes for the purpose
of debt consolidation, home improvements, education and a variety of other
purposes. At September 30, 1996, the Company's mortgage loan and securities
investment portfolio consisted of $544.2 million of mortgage loans held as
collateral for CMOs, $47.9 million of mortgage-backed or other collateralized
securities and $1.2 million of mortgage loans held for investment.
 
  Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-
Term Investment Operations. ICIFC's ability to design non-conforming mortgage
loans which suit the needs of its correspondent loan originators and their
borrowers while providing sufficient credit quality to investors, as well as
its efficient loan purchasing process, flexible purchase commitment options
and competitive pricing, enable it to compete effectively with other non-
conforming mortgage loan conduits. In addition to earnings generated from
ongoing securitizations and sales to third party investors, ICIFC supports the
Long-Term Investment Operations of the Company by supplying IMH with non-
conforming mortgage loans and securities backed by such loans. For the nine
months ended September 30, 1996, ICIFC acquired $1.2 billion in mortgage loans
and sold or securitized $1.5 billion of mortgage loans. The Long-Term
Investment Operations acquired $591.0 million of such loans as well as $29.6
million of securities created by ICIFC. Prior to the Contribution Transaction,
ICIFC was a division or subsidiary of ICII since 1990. IMH owns 99% of the
economic interest in ICIFC, while ICII is the holder of all of the outstanding
voting stock of ICIFC. At September 30, 1996, ICIFC maintained relationships
with 245 correspondents.
 
  Warehouse Lending Operations. The Warehouse Lending Operations, conducted by
IWLG, provides warehouse and repurchase financing to ICIFC and to approved
mortgage banks, most of which are correspondents of ICIFC, to finance mortgage
loans during the time from the closing of the loans to their sale or
 
                                      40
<PAGE>
 
other settlement with pre-approved investors. At September 30, 1996, the
Warehouse Lending Operations had $183.4 million in net finance receivables
outstanding, of which $169.0 million was outstanding with ICIFC.
 
  The following table sets forth the interest earning assets and interest
bearing liabilities of the Company on the dates indicated:
 
<TABLE>   
<CAPTION>
                                AT SEPTEMBER 30, 1996               AT DECEMBER 31, 1995
                         ----------------------------------- -----------------------------------
                         CARRYING   WEIGHTED     PERCENTAGE  CARRYING   WEIGHTED     PERCENTAGE
                          VALUE   AVERAGE YIELD OF PORTFOLIO  VALUE   AVERAGE YIELD OF PORTFOLIO
                         -------- ------------- ------------ -------- ------------- ------------
                                                 (DOLLARS IN THOUSANDS)
ASSET TYPE
<S>                      <C>      <C>           <C>          <C>      <C>           <C>
Money Market Account.... $  4,504      5.34%         0.58%   $    750      5.73%         0.12%
Investment Securities
 Available for Sale ....   47,942     13.44          6.14      17,378     11.23          2.85
Mortgage Loans Held for
 Investment (1)             1,238     10.50          0.16         --        --            --
CMO Collateral (1)......  544,213      7.97         69.65         --        --            --
Finance Receivables.....  183,427      8.29         23.47     583,021      8.80         95.64
Lease Payment
 Receivables
 Held for Sale .........      --        --            --        8,441     12.00          1.38
                         --------                  ------    --------                  ------
  Total Interest Bearing
   Assets............... $781,324      8.38%       100.00%   $609,590      8.91%       100.00%
                         ========                  ======    ========                  ======
BORROWING TYPE
CMO Borrowings.......... $517,463      5.85%        73.10%   $    --        -- %          -- %
Reverse Repurchase
 Agreements.............  190,440      6.16         26.90     566,652      6.67        100.00
                         --------                  ------    --------                  ------
  Total Interest Bearing
   Liabilities.......... $707,903      5.93        100.00%   $566,652      6.67        100.00%
                         ========                  ======    ========                  ======
  Net Interest Spread...               2.45%                               2.24%
</TABLE>    
- --------
(1) At September 30, 1996 and December 31, 1995, the Company had $6.1 million
    and none, respectively, of non-performing mortgage loans attributable to
    Long-Term Investment Operations.
 
LONG-TERM INVESTMENT OPERATIONS
 
 GENERAL
 
  IMH acquires mortgage loans and mortgage-backed securities, principally non-
conforming residential mortgage loans and securities backed by such loans, for
long-term investment. The Long-Term Investment Operations also invests, to a
lesser extent, in second mortgage loans. Currently, the Long-Term Investment
Operations include certain other assets which were purchased from ICII and its
affiliates. At September 30, 1996, the carrying value of such assets totaled
$7.7 million. See "Certain Transactions--Other Transactions." Income is earned
principally from the net interest income received by IMH on the mortgage loans
and mortgage-backed securities acquired and held in its portfolio. Such
acquisitions are financed with a portion of the Company's capital, as well as
borrowings provided through CMO borrowings and reverse repurchase agreements.
In April and August 1996, IMH, through trusts in which IMH Assets (a wholly-
owned, specialty purpose entity through which IMH conducts its CMO borrowings)
holds residual interests, completed $296.3 million and $259.8 million CMO
borrowings, respectively. ICIFC supports the investment objectives of IMH by
supplying all of the mortgage loans and mortgage-backed securities held by
IMH.
 
 MORTGAGE LOANS HELD IN THE PORTFOLIO
 
  The Company originates, through its network of correspondents, and invests a
substantial portion of its portfolio in non-conforming mortgage loans and, to
a lesser extent, second mortgage loans. The Company also purchases such loans
from third parties for long-term investment and for resale. Management
believes that non-conforming mortgage loans provide an attractive net earnings
profile and produce higher yields without
 
                                      41
<PAGE>
 
commensurately higher credit risks when compared with conforming mortgage
loans. A portion of the investment portfolio of the Long-Term Investment
Operations consists of "B" and "C" grade mortgage loans. The Company believes
that a structural change in the mortgage banking industry has occurred which
has increased demand for higher yielding non-conforming mortgage loans. This
change has been caused by a number of factors, including: (1) investors'
demand for higher yielding assets due to historically low interest rates over
the past few years; (2) increased securitization of high-yielding non-
conforming mortgage loans by the investment banking industry; (3)
quantification and development of standardized credit criteria by credit
rating agencies for securities backed by non-conforming mortgage loans; (4)
increased competition in the securitization industry, which has reduced
borrower interest rates and fees, thereby making non-conforming mortgage loans
more affordable; and (5) the end of the refinance "boom" of 1992 and 1993,
which has caused many mortgage banks, attempting to sustain origination
volume, to seek out non-conforming mortgage loan borrowers.
 
 INVESTMENTS IN MORTGAGE-BACKED SECURITIES
 
  The Company also acquires mortgage-backed securities generated through its
own securitization efforts as well as those generated by third parties. In
connection with the issuance of mortgage-backed securities by the ICIFC in the
form of REMICs, IMH has in the past and may in the future retain the senior or
subordinated securities as regular interests on a short-term or long-term
basis. In connection with ICIFC's REMIC securitizations of $645.9 million for
the nine months ended September 30, 1996, IMH has retained $29.6 million of
securities as regular interests. The face value of such retained regular
interests included $113,000 of "principal-only" and $21.1 million of
"interest-only" securities at the date of issuance. Such retained securities
or investments may subject the Company to credit, interest rate and/or
prepayment risks.
 
  At September 30, 1996, the Company's investment securities available for
sale included $16.4 million of subordinated securities collateralized by
mortgages. Substantially all of such securities were rated "B" to "BBB". In
general, subordinated classes of a particular series of securities bear all
losses prior to the related senior classes. Losses in excess of expected
losses at the time such securities are purchased would adversely affect the
Company's yield on such securities and, in extreme circumstances, could result
in the failure of the Company to recoup its initial investment.
 
  The Company will not acquire REMIC or CMO residuals other than residual
interests for which the Company owns all of the outstanding interests in the
REMIC or the CMO or which result from a securitization transaction by the
Conduit Operations. See "--Conduit Operations--Securitization and Sale
Process."
 
 FINANCING
 
  The Long-Term Investment Operations are principally financed through the
issuance of CMOs and borrowings under reverse repurchase agreements.
 
  Collateralized Mortgage Obligations. The following table sets forth the CMOs
issued by the Company for the nine months ended September 30, 1996:
 
<TABLE>
<CAPTION>
                                                                     ISSUANCE
                                                                      AMOUNT
             ISSUE DATE                    ISSUANCE NAME           (IN MILLIONS)
             ----------                    -------------           -------------
   <S>                            <C>                              <C>
   April 25, 1996................ Fund America Investor Trust V       $296.3
   August 28, 1996............... Imperial CMB Trust Series 1996-1    $259.8
</TABLE>
 
  The Company issues CMOs secured by mortgage loans as a means of financing a
portion of its Long-Term Investments Operations. The decision to issue CMOs is
based on the Company's current and future investment needs, market conditions
and other factors. For accounting and tax purposes, the mortgage loans
financed through the issuance of CMOs are treated as assets of the Company,
and the CMOs are treated as debt of the Company. Each issue of CMOs is fully
payable from the principal and interest payments on the underlying mortgage
loans collateralizing such debt, any cash or other collateral required to be
pledged as a condition to receiving the desired rating on the debt, and any
investment income on such collateral. The Long-Term Investment Operations
 
                                      42
<PAGE>
 
earns the net interest spread between the interest income on the mortgage
loans securing the CMOs and the interest and other expenses associated with
the CMO financing. The net interest spread may be directly impacted by the
levels of prepayment of the underlying mortgage loans and, to the extent each
CMO class has variable rates of interest, may be affected by changes in short-
term interest rates.
 
  When the Company issues CMOs for financing purposes, it seeks an investment
grade rating for such CMOs by a nationally recognized rating agency. To secure
such a rating, it is often necessary to pledge collateral in excess of the
principal amount of the CMOs to be issued, or to obtain other forms of credit
enhancements such as additional mortgage loan insurance. The need for
additional collateral or other credit enhancements depends upon factors such
as the type of collateral provided and the interest rates paid thereon, the
geographic concentration of the mortgaged property securing the collateral and
other criteria established by the rating agency. The pledge of additional
collateral reduces the capacity of the Company to raise additional funds
through short-term secured borrowings or additional CMOs and diminishes the
potential expansion of its investment portfolio. As a result, the Company's
objective is to pledge additional collateral for CMOs only in the amount
required to obtain an investment grade rating for the CMOs by a nationally
recognized rating agency. Total credit loss exposure to the Company is limited
to the equity invested in the CMOs at any point in time.
 
  The Company believes that under prevailing market conditions, an issuance of
CMOs receiving other than an investment grade rating would require payment of
an excessive yield to attract investors. No assurance can be given that the
Company will achieve the ratings it plans to seek for the CMOs. As of
September 30, 1996, the Company had issued two CMOs in original balances
totaling $556.1 million for the purpose of financing its Long-Term Investment
Operations. The CMOs were structured as one month LIBOR "floaters" with
interest payable monthly at LIBOR plus 0.32% to 0.50% currently, increasing to
LIBOR plus 1.00% to 1.32% after seven years. The CMOs are guaranteed for the
holders thereof by a mortgage loan insurer, giving the CMOs the highest rating
established by a nationally recognized rating agency. At September 30, 1996,
the underlying principal balance of mortgages supporting CMO borrowings of
$517.9 million represented approximately $486.7 million of six month and 2-
year LIBOR adjustable rate mortgage loans with varying grade quality and $41.6
million of second mortgage loans. Such mortgages balances are exclusive of net
premiums.
   
  Reverse Repurchase Agreements. The Company has obtained financings with
three different third-party lenders, at interest rates that are consistent
with its financing objectives described herein, and has established a $250.0
million committed financing facility with one lender under which the lender
would be required to enter into new reverse repurchase agreements as needed by
the Company during a specified period of time. For a discussion of the terms
of the Company's reverse repurchase facilities, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." A reverse repurchase agreement, although structured as a
sale and repurchase obligation, acts as a financing vehicle under which the
Company effectively pledges its mortgage loans and mortgage securities as
collateral to secure a short-term loan. Generally, the other party to the
agreement makes the loan in an amount equal to a percentage of the market
value of the pledged collateral. At the maturity of the reverse repurchase
agreement, the Company is required to repay the loan and correspondingly
receives back its collateral. Under reverse repurchase agreements, the Company
retains the incidents of beneficial ownership, including the right to
distributions on the collateral and the right to vote on matters as to which
certificate holders vote. Upon a payment default under such agreements, the
lending party may liquidate the collateral. The Company's borrowing agreements
require the Company to pledge cash, additional mortgage loans or additional
securities backed by mortgage loans in the event the market value of existing
collateral declines. To the extent that cash reserves are insufficient to
cover such deficiencies in collateral, the Company may be required to sell
assets to reduce its borrowings.     
 
  Reverse repurchase agreements take the form of a sale of securities to the
lender at a discounted price in return for the lender's agreement to resell
the same securities to the borrower at a future date (the maturity of the
borrowing) at an agreed price. In the event of the insolvency or bankruptcy of
the Company, certain reverse repurchase agreements may qualify for special
treatment under the Bankruptcy Code, the effect of which is, among other
things, to allow the creditor under such agreements to avoid the automatic
stay provisions of the Bankruptcy Code and to foreclose on the collateral
agreements without delay. In the event of the insolvency or
 
                                      43
<PAGE>
 
bankruptcy of a lender during the term of a reverse repurchase agreement, the
lender may be permitted, under the Bankruptcy Code, to repudiate the contract,
and the Company's claim against the lender for damages therefrom may be
treated simply as one of the unsecured creditors. In addition, if the lender
is a broker or dealer subject to the Securities Investor Protection Act of
1970, the Company's ability to exercise its rights to recover its securities
under a reverse repurchase agreement or to be compensated for any damages
resulting from the lender's insolvency may be further limited by such statute.
If the lender is an insured depository institution subject to the Federal
Deposit Insurance Act, the Company's ability to exercise its rights to recover
its securities under a reverse repurchase agreement or to be compensated for
damages resulting form the lender's insolvency may be limited by such statute
rather than the Bankruptcy Code. The effect of these various statutes is,
among other things, that a bankrupt lender, or its conservator or receiver,
may be permitted to repudiate or disaffirm its reverse repurchase agreements,
and the Company's claims against the bankrupt lender for damages resulting
therefrom may be treated simply as one of an unsecured creditor. Should this
occur, the Company's claims would be subject to significant delay and, if and
when received, may be substantially less than the damages actually suffered by
the Company.
 
  To reduce its exposure to the credit risk of reverse repurchase agreement
lenders, the Company entered into such agreements with several different
parties and follows its own credit exposure procedures. The Company monitors
the financial condition of its reverse repurchase agreement lenders on a
regular basis, including the percentage of mortgage loans that are the subject
of reverse repurchase agreements with a single lender. Notwithstanding these
measures, no assurance can be given that the Company will be able to avoid
such third party risks.
 
  Other Mortgage-Backed Securities. As an additional alternative for the
financing of its Long-Term Investment Operations, the Company may issue other
mortgage-backed securities, if, in the determination of the Company, the
issuance of such other securities is advantageous. In particular, mortgage
pass-through certificates representing an undivided interest in pools of
mortgage loans formed by the Company may prove to be an attractive vehicle for
raising funds.
 
  The holders of mortgage pass-through certificates receive their pro rata
share of the principal payments made on a pool of mortgage loans and interest
at a pass-through interest rate that is fixed at the time of offering. The
Company may retain up to a 100% undivided interest in a significant number of
the pools of mortgage loans underlying such pass-through certificates. The
retained interest, if any, may also be subordinated so that, in the event of a
loss, payments to certificate holders will be made before the Company receives
its payments. Unlike the issuance of CMOs, the issuance of mortgage pass-
through certificates will not create an obligation of the Company to security
holders in the event of a borrower default. However, as in the case of CMOs,
the Company may be required to obtain various forms of credit enhancements in
order to obtain an investment grade rating for issues of mortgage pass-through
certificates by a nationally-recognized rating agency.
 
 
CONDUIT OPERATIONS
 
 GENERAL
 
  ICIFC began its mortgage conduit operations as a division of ICII in 1990.
As of September 30, 1996, ICIFC maintained relationships with 245
correspondents. Correspondents originate and close mortgage loans under
ICIFC's mortgage loan programs on a flow (loan-by-loan) basis or through bulk
sale commitments. Correspondents include savings and loan associations,
commercial banks, mortgage bankers and mortgage brokers. During the nine
months ended September 30, 1996, the Interim Period, and the years ended
December 31, 1995 and 1994, ICIFC acquired from its correspondents, including
ICII after the Contribution Transaction, $1.2 billion, $547.2 million, $1.1
billion and $1.7 billion, respectively, of mortgage loans.
 
  The Conduit Operations consists of the purchase and sale of mortgage loans
primarily secured by first liens and, to a lesser extent, second liens on
single (one-to-four) family residential properties that are originated in
accordance with ICIFC's underwriting guidelines. As a non-conforming mortgage
loan conduit, ICIFC acts as a
 
                                      44
<PAGE>
 
intermediary between the originators of mortgage loans that do not currently
meet the guidelines for purchase by government-sponsored entities (i.e., FNMA
and FHLMC) that guarantee mortgage-backed securities and permanent investors
in mortgage-backed securities secured by or representing an ownership interest
in such mortgage loans. ICIFC also acts as a bulk purchaser of primarily non-
conforming mortgage loans. The Company believes that non-conforming mortgage
loans provide an attractive net earnings profile, producing higher yields
without commensurately higher credit risks when compared to mortgage loans
that qualify for purchase by FNMA or FHLMC. In addition, based on the
Company's experience in the mortgage banking industry and in the mortgage
conduit business, the Company believes it provides mortgage loan sellers with
an expanded and competitively priced array of non-conforming and "B" and "C"
grade mortgage loan products, timely purchasing of loans, mandatory, best
efforts and optional rate-lock commitments, and flexible Master Commitments.
 
  All non-conforming loans purchased by ICIFC are made available for sale to
IMH at fair market value at the date of sale and subsequent transfer to IMH.
In addition, ICII has granted ICIFC a right of first refusal to purchase all
non-conforming loans that ICII or any 25% entity originates or acquires and
subsequently offers for sale, and ICIFC has granted ICII, or any 25% entity
designated by ICII, a right of first refusal to purchase all conforming
mortgage loans that ICIFC acquires and subsequently offers for sale. See
"Certain Transactions--The Contribution Transaction."
 
 MARKETING AND PRODUCTION
 
  Marketing Strategy. The Company's competitive strategy is, in part, to be a
low cost national acquirer, through its national correspondent network, of
mortgage loans to be held for investment, sold in the secondary market as
whole loans or securitized as mortgage-backed securities. A key feature of
this approach is the use of a large national network of correspondent
originators, which enables the Company to shift the high fixed costs of
interfacing with the homeowner to the correspondents. The marketing strategy
for the Conduit Operations is designed to accomplish three objectives: (1)
attract a geographically diverse group of both large and small correspondent
loan originators, (2) establish relationships with such correspondents and
facilitate their ability to offer a variety of loan products designed by ICIFC
and (3) purchase the loans and securitize or sell them into the secondary
market or to IMH. In order to accomplish these objectives, ICIFC designs and
offers loan products that are attractive to potential non-conforming borrowers
as well as to end-investors in non-conforming mortgage loans and mortgage-
backed securities.
 
  ICIFC has historically emphasized and continues to emphasize flexibility in
its mortgage loan product mix as part of its strategy to attract
correspondents and establish relationships. ICIFC also maintains relationships
with numerous end-investors so that it may develop products that they may be
interested in as market conditions change, which in turn may be offered
through the correspondent network. As a consequence, ICIFC is less dependent
on acquiring conforming mortgage loans than many mortgage bankers and has, in
the past, both as a division or subsidiary of ICII and as a subsidiary of IMH,
acquired significant volumes of non-conforming loans.
 
  In response to the needs of its non-conforming mortgage loan correspondents
and as part of its strategy to facilitate the sale of its loans through the
Conduit Operations, ICIFC's marketing strategy offers efficient response time
in the purchase process, direct and frequent contact with its correspondents
through a trained sales force and flexible commitment programs. Finally, due
to the price sensitivity of most home buyers, ICIFC is competitive in pricing
its products in order to attract sufficient numbers of borrowers.
 
  Mortgage Loans Acquired. A majority of the mortgage loans purchased through
the Conduit Operations are non-conforming mortgage loans. Currently, the
maximum principal balance for a conforming loan is $207,000. Loans that exceed
such maximum principal balance are referred to as "jumbo loans." Non-
conforming mortgage loans generally consist of jumbo loans or other loans that
are originated in accordance with underwriting or product guidelines that
differ from those applied by FNMA and FHLMC. Such non-conforming loans may
involve some greater risk as a result of such different underwriting and
product guidelines. A portion of the mortgage loans purchased through the
Conduit Operations are "B" and "C" grade loans, as
 
                                      45
<PAGE>
 
described below, which may entail greater credit risks than other non-
conforming loans. For the nine months ended September 30, 1996, "B" and "C"
grade loans, as defined by the Company, accounted for 12.7% of ICIFC's total
loan acquisitions. In addition, during that period, ICIFC's acquisitions
included 0.7% of "D" grade loans, as defined by the Company. ICIFC generally
does not acquire mortgage loans with principal balances above $750,000 for "A"
quality loans, and $400,000 for "B" and "C" grade loans.
 
  Non-conforming loans purchased by ICIFC pursuant to its underwriting
programs typically differ from those purchased pursuant to the guidelines
established by FNMA and FHLMC primarily with respect to loan-to-value ratios,
borrower income or credit history, required documentation, interest rates,
borrower occupancy of the mortgaged property and/or property types. To the
extent that these programs reflect underwriting standards different from those
of FNMA and FHLMC, the performance of loans made thereunder may reflect higher
delinquency rates and/or credit losses. The Company believes that the non-
conforming mortgage loans acquired by ICIFC produce higher yields without
commensurately higher credit risk when compared to conforming mortgage loans.
   
  ICIFC's focus on the acquisition of non-conforming mortgage loans may affect
the Company's financial performance. For example, the purchase market of non-
conforming loans has typically provided for higher interest rates in order to
compensate for the lower liquidity of such loans, thereby potentially
enhancing the interest income earned by the Company during the accumulation
phase for loans held for sale and during the holding period for loans held for
investment. In addition, due to the lower level of liquidity in non-conforming
loan market, the Company may realize higher returns upon securitization of
such loans than would be realized upon securitization of conforming loans. On
the other hand, such lower levels of liquidity may from time to time cause the
Company to hold such loans or other mortgage-related assets supported by such
loans. In addition, by retaining for investment either the loans or other
mortgage-related assets supported by such loans, the Company assumes the
potential risk of any increased delinquency rates and/or credit losses as well
as interest rate risk.     
 
  Mortgage loans acquired by ICIFC are generally secured by first liens and,
to a lesser extent, second liens on single (one-to-four) family residential
properties with either fixed or adjustable interest rates. During the nine
months ended September 30, 1996, fixed-rate mortgage loans and ARMs accounted
for approximately 67.2% and 32.8%, respectively, of the mortgage loans
purchased by ICIFC. Fixed-rate mortgage loans have a constant interest rate
over the life of the loan, which is generally 15 or 30 years. The interest
rate on an ARM is typically tied to an index (such as LIBOR or the CMT Index)
and is adjustable periodically at various intervals. Such mortgage loans are
typically subject to lifetime interest rate caps and periodic interest rate
and/or payment caps. The interest rates on ARMs are typically lower than the
average comparable fixed rate loan initially, but may be higher than average
comparable fixed rate loans over the life of the loan. Substantially all
mortgage loans purchased by ICIFC will fully amortize over their remaining
terms. Currently, ICIFC purchases (1) fixed rate mortgage loans that have
original terms to maturity ranging from 10 to 30 years, (2) ARM mortgage loans
that adjust based on LIBOR or the CMT Index, and (3) 5/25 mortgage loans that
adjust on a one-time basis approximately five years following origination to
an interest rate based upon a defined index plus a spread. ICIFC may from time
to time purchase mortgage loans with other interest rate and maturity
characteristics.
 
 
                                      46
<PAGE>
 
  A summary of ICIFC's mortgage loan acquisitions by type of loan, excluding
net premiums, is shown below.
 
<TABLE>   
<CAPTION>
                                                                  PERIOD FROM
                                                               NOVEMBER 20, 1995
                                            NINE MONTHS ENDED       THROUGH
                                            SEPTEMBER 30, 1996 DECEMBER 31, 1995
                                            ------------------ -----------------
                                                   (DOLLARS IN MILLIONS,
                                               EXCEPT FOR AVERAGE LOAN SIZE)
<S>                                         <C>                <C>
Conforming Loans:
  Volume of loans..........................      $   69.1          $  152.3
  Percentage of total volume...............           6.0%             28.2%
Non-conforming Loans:
  Volume of loans..........................      $1,080.6          $  388.3
  Percentage of total volume...............          94.0%             71.8%
                                                 --------          --------
                                                 $1,149.7          $  540.6
                                                 ========          ========
Fixed Rate Loans:
  Volume of loans..........................      $  772.7          $  142.9
  Percentage of total volume...............          67.2%             26.4%
Adjustable Rate Loans:
  Volume of loans..........................      $  377.0          $  397.7
  Percentage of total volume...............          32.8%             73.6%
                                                 --------          --------
                                                 $1,149.7          $  540.6
                                                 ========          ========
Average Loan Size..........................      $130,817          $143,017
</TABLE>    
 
  The credit quality of the loans purchased by ICIFC varies depending upon the
specific program under which such loans are purchased. For example, a
principal credit risk inherent in adjustable-rate mortgage loans is the
potential "payment shock" experienced by the borrower as rates rise, which
could result in increased delinquencies and credit losses. In the case of
negative amortization mortgage loans, a portion of the interest due accrues to
the underlying principal balance of the loan, thereby increasing the loan-to-
value ratio of the mortgage loans. As a general rule, mortgage loans with
higher loan-to-value ratios are vulnerable to higher delinquency rates given
the borrower's lower equity investment in the underlying property. Limited
documentation mortgage loans, by contrast, must meet lower loan-to-value
ratios and more rigorous criteria for borrower credit quality in order to
compensate for the reduced level of lender review with respect to the
borrower's earnings history and capacity.
 
  ICIFC's loan purchase activities have and are expected in the future to
continue to focus on those regions of the country where higher volumes of non-
conforming mortgage loans are originated. The highest concentration of non-
conforming mortgage loans purchased by ICIFC relates to properties located in
California because of the generally higher property values and mortgage loan
balances prevalent there. In addition, of the $1.2 billion in loans acquired
during the nine months ended September 30, 1996, $787.9 million (or 67.0%)
were acquired from ICIFC's top ten sellers, including ICII, by volume of
sales. ICII, Salomon Brothers, Inc and Ventana Mortgage Corp., each accounted
for more than 10% of the total mortgage loans acquired by ICIFC during the
nine months ended September 30, 1996. No seller other than ICII or SPTL is an
affiliate of the Company.

                                      47
<PAGE>
 
  The following table sets forth the geographic distribution of ICIFC's
mortgage loan acquisitions, excluding net premiums.
 
<TABLE>
<CAPTION>
                                                                  PERIOD FROM
                                                               NOVEMBER 20, 1995
                                            NINE MONTHS ENDED       THROUGH
                                           SEPTEMBER  30, 1996 DECEMBER 31, 1995
                                           ------------------- -----------------
                                            DOLLAR  PERCENTAGE DOLLAR PERCENTAGE
                                            AMOUNT   OF TOTAL  AMOUNT  OF TOTAL
                                           -------- ---------- ------ ----------
                                                   (DOLLARS IN MILLIONS)
<S>                                        <C>      <C>        <C>    <C>
California................................ $  551.8    48.0%   $370.6    68.5%
Florida...................................    109.4     9.5      20.7     3.8
New Jersey................................     91.2     7.9      22.1     4.1
New York..................................     42.8     3.7       5.7     1.0
Washington................................     36.0     3.1      23.3     4.3
Oregon....................................     27.0     2.3      18.9     3.5
Utah......................................     24.2     2.1       5.4     1.0
Illinois..................................     23.0     2.0       2.1     0.4
Colorado..................................     22.2     1.9      23.6     4.4
Nevada....................................     22.0     1.9       4.5     0.8
Massachusetts.............................     19.5     1.7       1.4     0.3
North Carolina............................     17.3     1.5       2.4     0.4
Maryland..................................     16.7     1.5       7.4     1.4
Texas.....................................     16.7     1.5       1.5     0.3
Arizona...................................     16.5     1.4       5.9     1.1
Hawaii....................................     16.3     1.4       4.4     0.8
Georgia...................................     14.7     1.3       2.1     0.4
Virginia..................................     14.5     1.3       2.0     0.4
Pennsylvania..............................     12.0     1.0       3.7     0.7
Other ....................................     55.9     5.0      12.9     2.4
                                           --------   -----    ------   -----
                                           $1,149.7   100.0%   $540.6   100.0%
                                           ========   =====    ======   =====
</TABLE>
 
  To date, a portion of the loans purchased by ICIFC comprise "B" and "C"
grade residential mortgage loans, as defined by the Company. For the nine
months ended September 30, 1996, such loans accounted for 12.7% of ICIFC's
total loan acquisitions. In general, "B" and "C" grade loans are residential
mortgage loans made to borrowers with lower credit ratings than borrowers of
higher quality, or so called "A" grade mortgage loans, and are normally
subject to higher rates of loss and delinquency than the other non-conforming
loans purchased by ICIFC. As a result, "B" and "C" grade loans normally bear a
higher rate of interest, and are typically subject to higher fees (including
greater prepayment fees and late payment penalties), than non-conforming loans
of "A" quality. In general, greater emphasis is placed upon the value of the
mortgaged property and, consequently, the quality of appraisals thereof, and
less upon the credit history of the borrower in underwriting "B" and "C" grade
mortgage loans than in underwriting "A" grade loans. In addition, "B" and "C"
grade loans are generally subject to lower loan-to-value ratios than "A" grade
loans. Under ICIFC's "B" and "C" mortgage loan program, underwriting authority
is delegated only to correspondents who meet those strict underwriting
guidelines established by ICIFC. See "--Underwriting and Quality Control."
 
  ICIFC generally purchases its loans on a "servicing-released" basis,
particularly in the case of "B" and "C" grade loans due to its belief that
control over the servicing and collection functions with respect to such loans
is important to the realization of a satisfactory return thereon. To the
extent ICIFC finances the acquisition of such loans with the warehouse line
from IWLG, ICIFC pledges such loans and the related servicing rights to IWLG
as collateral. As a result, IWLG has an absolute right to control the
servicing of such loans (including the right to collect payments on the
underlying mortgage loans) and to foreclose upon the underlying real property
in the case
 
                                      48
<PAGE>
 
of default. Typically, IWLG delegates its right to service the mortgage loans
securing the warehouse line to ICIFC. In connection therewith, ICIFC has
contracted with third party sub-servicers to perform the function of servicing
for ICIFC. ICIFC believes that the selection of third party sub-servicers was
more effective than establishing a servicing department within the Company.
However, part of ICIFC's responsibility is to continually monitor the
performance of the sub-servicers through monthly performance reviews and site
visits. Depending on these sub-servicer reviews, the Company may in the future
form a separate collection group to assist the sub-servicer in the servicing
of these loans. See "--Servicing and Master Servicing."
 
  In connection with the securitization of "B" and "C" grade loans, the levels
of subordination required as credit enhancement for the more senior classes of
securities issued in connection therewith are higher than those with respect
to its "A" grade non-conforming loans. Similarly, in connection with the
securitization of mortgage loans secured by second liens, the levels of
subordination required as credit enhancement for the more senior classes of
securities issued in connection therewith are higher than those with respect
to its mortgage loans secured by first liens. Thus, to the extent that the
Company retains any of the subordinated securities created in connection with
such securitizations and losses with respect to such pools of "B" and "C"
grade loans or mortgage loans secured by second liens are higher than
expected, the Company's future earnings could be adversely affected.
 
  Seller Eligibility Requirements. The mortgage loans acquired by the Conduit
Operations are originated by various sellers, including savings and loan
associations, banks, mortgage bankers and other mortgage brokers. Sellers are
required to meet certain regulatory, financial, insurance and performance
requirements established by ICIFC before they are eligible to participate in
its mortgage loan purchase program, and must submit to periodic reviews by
ICIFC to ensure continued compliance with these requirements. ICIFC's current
criteria for seller participation generally include a minimum tangible net
worth requirement ($300,000 in its non-delegated program, $500,000 in its
partially delegated program and at least $1 million in its fully delegated
program, as described below), approval as a FNMA or FHLMC Seller/Servicer in
good standing and a HUD-approved mortgagee in good standing or a financial
institution that is insured by the FDIC or comparable federal or state agency,
and that the seller is examined by a federal or state authority. In addition,
sellers are required to have comprehensive loan origination quality control
procedures. In connection with its qualification, each seller enters into an
agreement that generally provides for recourse by ICIFC against the seller in
the event of a breach of representations or warranties made by the seller with
respect to mortgage loans sold to ICIFC, any fraud or misrepresentation during
the mortgage loan origination process, and upon early payment default on such
loans. As of September 30, 1996, 245 sellers had been approved by ICIFC as
being eligible to participate in the Conduit Operations.
 
 PURCHASE COMMITMENT PROCESS AND PRICING
 
  Master Commitments. As part of its marketing strategy, ICIFC has established
mortgage loan purchase commitments ("Master Commitments") with sellers that,
subject to certain conditions, entitle the seller to sell and obligate ICIFC
to purchase a specified dollar amount of non-conforming mortgage loans over a
period generally ranging from six months to one year. The terms of each Master
Commitment specify whether a seller may sell loans to ICIFC on a mandatory,
best efforts or optional basis, or a combination thereof. Master Commitments
do not generally obligate ICIFC to purchase loans at a specific price, but
rather provide the seller with a future outlet for the sale of its originated
loans based on ICIFC's quoted prices at the time of purchase. Master
Commitments specify the types of mortgage loans the seller is entitled to sell
to ICIFC and generally range from $2 million to $50 million in aggregate
committed principal amount. The provisions of ICIFC's Seller/Servicer Guide
are incorporated in each of the Conduit Operations' Master Commitments and may
be modified by negotiations between the parties. In addition, there are
individualized Master Commitment options available to sellers, which include
alternative pricing structures or specialized loan products. In order to
obtain a Master Commitment, a seller may be asked to pay a non-refundable up
front or non-delivery fee, or both, to the Company. As of September 30, 1996,
ICIFC had outstanding Master Commitments with 62 sellers to purchase
 
                                      49
<PAGE>
 
mortgage loans in the aggregate principal amount of $774.0 million over
periods generally ranging from six months to one year, of which $79.9 million
were committed to be purchased pursuant to rate-locks (as defined below).
 
  Sellers who have entered into the aforementioned Master Commitments may sell
mortgage loans to the Conduit Operations by executing individual, bulk or
other rate-locks (each, a "rate-lock"). Each rate-lock, in conjunction with
the related Master Commitment, specifies the terms of the related sale,
including the quantity and price of the mortgage loans or the formula by which
the price will be determined, the rate-lock type and the delivery
requirements. Historically, the up front fee paid by a seller to ICIFC to
obtain a Master Commitment on a mandatory delivery basis is often refunded pro
rata as the seller delivers loans pursuant to rate-locks. Any remaining fee
after the Master Commitment expires is retained by the Conduit Operations.
 
  Following the issuance of a specific rate-lock, ICIFC is subject to the risk
of interest rate fluctuations and enters into hedging transactions to diminish
such risk. Hedging transactions may include mandatory or optional forward
sales of mortgage loans or mortgage-backed securities, interest rate caps,
floors and swaps, mandatory forward sales, mandatory or optional sales of
futures and other financial futures transactions. The nature and quantity of
hedging transactions are determined by the management of ICIFC based on
various factors, including market conditions and the expected volume of
mortgage loan purchases. Gains and losses on hedging transactions are recorded
as incurred.
 
  Bulk and Other Rate-Locks. ICIFC also acquires mortgage loans from sellers
that are not purchased pursuant to Master Commitments. These purchases may be
made on a bulk or individual rate-lock basis. Bulk rate-locks obligate the
seller to sell and ICIFC to purchase a specific group of loans, generally
ranging from $1 million to $125 million in aggregate committed principal
amount, at set prices on specific dates. Bulk rate-locks enable ICIFC to
acquire substantial quantities of loans on a more immediate basis. The
specific pricing, delivery and program requirements of these purchases are
determined by negotiation between the parties but are generally in accordance
with the provisions of ICIFC's Seller/Servicer Guide. Due to the active
presence of investment banks and other substantial investors in this area,
bulk pricing is extremely competitive. Loans are also purchased from
individual sellers (typically smaller originators of mortgage loans) who do
not wish to sell pursuant to either a Master Commitment or bulk rate-lock. The
terms of these individual purchases are based primarily on ICIFC's
Seller/Servicer Guide and standard pricing provisions, and are offered on a
mandatory basis.
 
  Mandatory, Best Efforts and Optional Rate-Locks. Mandatory rate-locks
require the seller to deliver a specified quantity of loans to ICIFC over a
specified period of time regardless of whether the loans are actually
originated by the seller or whether circumstances beyond the seller's control
prevent delivery. ICIFC is required to purchase all loans covered by the rate-
lock at prices established at the time of rate-lock. If the seller is unable
to deliver the specified loans, it may instead deliver comparable loans
approved by ICIFC within the specified delivery time. Failure to deliver the
specified mortgage loans or acceptable substitute loans under a mandatory
rate-lock obligates the seller to pay ICIFC a penalty, and, if ICIFC's
mortgage loan yield requirements have declined, the present value of the
difference in yield ICIFC would have obtained on the mortgage loans that the
seller agreed to deliver and the yield available on similar mortgage loans
subject to mandatory rate-lock issued at the time of such failure to deliver.
In contrast, mortgage loans sold on a best efforts basis must be delivered to
ICIFC only if they are actually originated by the seller. The best efforts
rate-lock provides sellers with an effective way to sell loans during the
origination process without any penalty for failure to deliver. Optional rate-
locks gives the seller the option to deliver mortgage loans to ICIFC at a
fixed price on a future date and requires the payment of up front fees to
ICIFC. Any up front fees paid in connection with best efforts and optional
rate-locks are retained by ICIFC whether or not the loans are delivered.
 
  Pricing. ICIFC sets purchase prices at least once every business day for
mortgage loans it acquires for its Conduit Operations based on prevailing
market conditions. Different prices are established for the various types of
loans, rate-lock periods and types of rate-locks (mandatory, best efforts or
optional). ICIFC's standard pricing is based on the anticipated price it
receives upon sale or securitization of the loans, the anticipated interest
spread realized during the accumulation period, the targeted profit margin and
the anticipated issuance, credit
 
                                      50
<PAGE>
 
enhancement and ongoing administrative costs associated with such sale or
securitization. The credit enhancement cost component of ICIFC's pricing is
established for individual mortgage loans or pools of mortgage loans based
upon the characteristics of such loan or loan pool. As the characteristics of
the loan or loan pool vary, this cost component is correspondingly adjusted
upward or downward to reflect the variation. ICIFC's adjustments are reviewed
periodically by management to reflect changes in the costs of credit
enhancement. Adjustments to ICIFC's standard pricing may also be negotiated on
an individual basis under Master Commitments or bulk or individual rate-locks
with sellers. See "--Securitization and Sale Process."
 
 UNDERWRITING AND QUALITY CONTROL
 
  Purchase Guidelines. ICIFC has developed comprehensive purchase guidelines
for the acquisition of mortgage loans by the Conduit Operations. Subject to
certain exceptions, each loan purchased must conform to the loan eligibility
requirements specified in ICIFC's Seller/Servicer Guide with respect to, among
other things, loan amount, type of property, loan-to-value ratio, type and
amount of insurance, credit history of the borrower, income ratios, sources of
funds, appraisals and loan documentation. ICIFC also performs a legal
documentation review prior to the purchase of any mortgage loan. ICIFC either
delegates the underwriting function to its correspondents or performs the
function itself. Additionally, for mortgage loans that are underwritten by
contract underwriters (as explained below), ICIFC does not perform a full
underwriting review prior to purchase, but instead relies on the credit review
and analysis performed by the contract underwriter, as well as its own pre-
purchase eligibility process to ensure that the loan meets the program
acceptance guidelines and a post-purchase quality control review.
 
  Underwriting Methods. ICIFC has established a delegated underwriting
program, which is similar in concept to the delegated underwriting programs
established by FNMA and FHLMC. Under this program, qualified sellers are
required to underwrite loans in compliance with ICIFC's underwriting
guidelines as set forth in ICIFC's Seller/Servicer Guide or an individual
Master Commitment. As part of the approval process for a seller to become a
delegated underwriter, the seller must submit a small sample of loans for a
pre-purchase quality control review by ICIFC. If the submitted loans comply
with the Company's underwriting guidelines and the seller meets ICIFC's
financial and performance criteria, the seller will be approved for the
delegated underwriting program. In connection with its approval, the seller
must represent and warrant to ICIFC that all mortgage loans sold to ICIFC will
comply with ICIFC's underwriting guidelines. The current financial, historical
loan quality and other criteria for seller participation in this program
generally include a minimum net worth requirement and verification of the
seller's good standing with FNMA and FHLMC. As of September 30, 1996, 158
correspondents had qualified by ICIFC for participation in the delegated
underwriting program.
 
  The delegated underwriting program consists of two separate subprograms.
ICIFC's principal delegated underwriting subprogram is a fully delegated
program designed for loan sellers that meet higher financial and performance
criteria than those applicable to sellers generally. Qualifying sellers have
delegated underwriting authority for all mortgage products under this
subprogram, except for "B" and "C" grade loans. The second subprogram is a
partially delegated program pursuant to which sellers only have delegated
underwriting authority for ICIFC's conforming mortgage loan products.
 
  Mortgage loans acquired under ICIFC's non-delegated underwriting program are
either fully underwritten by ICIFC's underwriting staff or involve the use of
contract underwriters. ICIFC has contracted with several national mortgage
insurance firms that conduct contract underwriting for mortgage loan
acquisitions by ICIFC. Under these contracts, ICIFC relies on the credit
review and analysis of the contract underwriter, as well as its own pre-
purchase eligibility review to ensure that the loan meets program acceptance,
its own follow-up quality control procedures and the representations and
warranties of the contract underwriter.
 
  Loans that are not acquired under either delegated or contract underwriter
methods are fully underwritten by ICIFC's underwriting staff. In such cases,
ICIFC performs a full credit review and analysis to ensure compliance with its
loan eligibility requirements. This review specifically includes, among other
things, an
 
                                      51
<PAGE>
 
analysis of the underlying property and associated appraisal and an
examination of the credit, employment and income history of the borrower.
Under all of these methods, loans are purchased only after completion of a
legal documentation and eligibility criteria review.
 
  Although the delegated underwriting program could be deemed to present
inherently greater risks due to the lower level of individual loan review, the
Company believes that this risk is mitigated by the higher net worth
requirements applicable to loan sellers eligible for the delegated
underwriting program and ICIFC's eligibility control prior to purchase,
thereby enhancing the financial support for the representations and warranties
made by such sellers. ICIFC also relies on such sellers' experience and
demonstrated performance with the government-sponsored entities referred to
above with respect to the delegated underwriting program.
 
  Under all of ICIFC's underwriting methods, loan documentation requirements
for verifying the borrowers' income and assets vary according to loan-to-value
ratios and other factors. This variation is necessary to be competitive and
responsive to the needs of the non-conforming mortgage loan sellers.
Generally, as the standards for required documentation are lowered, borrowers'
down payment requirements are increased and the required loan-to-value ratios
are decreased. These types of loans with less documentation are reviewed on a
risk analysis underwriting basis, similar to the underwriting analysis
utilized by mortgage insurance companies. Reduced documentation loans require
the borrower to have a stronger credit history and larger cash reserves to
show a savings pattern history, and the appraisal of the property is validated
by either an enhanced desk or field review. Within the underwriting philosophy
of the ICIFC guidelines, the underwriters utilize a risk analysis approach to
determine the borrower's ability and willingness to repay the debt and to
determine if the property taken as security has sufficient value to recover
the debt in the event that the loan defaults. Each loan is reviewed for
compensating factors (i.e., credit reports, sufficient assets, appraisal, job
stability, savings pattern), and overall compensating factors are reviewed to
fully analyze the risk. Full documentation is requested if it is the judgment
of the underwriter that the compensating factors are insufficient for loan
approval.
 
  Quality Control. Ongoing quality control reviews are conducted by ICIFC to
ensure that the mortgage loans purchased meet its quality standards. The type
and extent of the quality control review depend on the nature of seller and
the characteristics of the loans. Loans acquired under the delegated
underwriting program are reviewed in accordance with the quality control
procedures described above. ICIFC reviews on a post-purchase basis a portion
of all loans submitted with delegated underwriting to determine that the loans
were purchased in compliance with the guidelines set forth by ICIFC. ICIFC
reviews a higher portion of certain categories of mortgage loans, such as
loans with reduced documentation, loans with higher loan-to-value ratios
(above 80%) and cash out refinances. In performing a quality control review on
a loan, ICIFC analyzes the underlying property appraisal and examines the
credit and income history of the borrower. In addition, all documents
submitted in connection with the purchase of the loans, including insurance
policies, title policies, deeds of trust or mortgages and promissory notes,
are examined for compliance with ICIFC's guidelines and to ensure compliance
to state and federal regulations.
 
 SECURITIZATION AND SALE PROCESS
 
  General. The Conduit Operations primarily uses a warehouse line of credit
from IWLG and equity to finance the acquisition of mortgage loans from
correspondents. When a sufficient volume of mortgage loans with similar
characteristics has been accumulated, generally $100 million to $300 million,
ICIFC will securitize them through the issuance of mortgage-backed securities
in the form of a REMIC or resell them in bulk whole loan sales. The period
between the time ICIFC commits to purchase a mortgage loan and the time it
sells or securitizes such mortgage loan generally ranges from 10 to 90 days,
depending on certain factors, including the length of the purchase commitment
period, the loan volume by product type and the securitization process.
 
  Any decision by ICIFC to form REMICs or to sell the loans in bulk is
influenced by a variety of factors. REMIC transactions are generally accounted
for as sales of the mortgage loans and can eliminate or minimize any long-term
residual investment in such loans. REMIC securities consist of one or more
classes of "regular interests" and a single class of "residual interest." The
regular interests are tailored to the needs of investors
 
                                      52
<PAGE>
 
and may be issued in multiple classes with varying maturities, average lives
and interest rates. These regular interests are predominantly senior
securities but, in conjunction with providing credit enhancement, may be
subordinated to the rights of other regular interests. The residual interest
represents the remainder of the cash flows from the mortgage loans (including,
in some instances, reinvestment income) over the amounts required to be
distributed to the regular interests. In some cases, the regular interests may
be structured so that there is no significant residual cash flow, thereby
allowing ICIFC to sell its entire interest in the mortgage loans. As a result,
in some cases, all of the capital originally invested in the mortgage loans by
the Company is redeployed in the Conduit Operations.
 
  As part of its operations, ICIFC may retain regular and residual interests
on a short-term or long-term basis. In the nine months ended September 30,
1996, ICIFC issued $645.9 million in REMIC securities backed by $658.2 million
of principal balance mortgage loans. The following table sets forth the REMIC
securities issued by the Conduit Operations for the nine months ended
September 30, 1996:
 
<TABLE>
<CAPTION>
                                                                        ISSUANCE
                      ISSUE DATE                       ISSUANCE NAME     AMOUNT
                      ----------                       -------------    --------
   <S>                                              <C>                 <C>
   February 28, 1996............................... Bear Stearns 1996-1  $171.9
   June 28, 1996................................... Bear Stearns 1996-3  $213.0
   September 30, 1996.............................. Bear Stearns 1996-4  $261.0
</TABLE>
 
  Credit Enhancement. REMICs created by the Conduit Operations are structured
so that one or more of the classes of such securities are rated investment
grade by at least one nationally recognized rating agency. In contrast to
Agency Certificates in which the principal and interest payments are
guaranteed by the U.S. government or an agency thereof, securities created by
the Conduit Operations do not benefit from any such guarantee. The ratings for
the Conduit Operations' REMICs are based upon the perceived credit risk by the
applicable rating agency of the underlying mortgage loans, the structure of
the securities, and the associated level of credit enhancement. Credit
enhancement is designed to provide protection to the security holders in the
event of borrower defaults and other losses including those associated with
fraud or reductions in the principal balances or interest rates on mortgage
loans as required by law or a bankruptcy court.
 
  The Conduit Operations can utilize multiple forms of credit enhancement,
including special hazard insurance, private mortgage pool insurance reserve
funds, letters of credit, surety bonds, over-collateralization and
subordination or any combination thereof. In determining whether to provide
credit enhancement through subordination or other credit enhancement methods,
the Conduit Operations takes into consideration the costs associated with each
method.
 
  Each series of mortgage-backed securities is typically fully payable from
the mortgage assets underlying such series, and the recourse of investors is
limited to such assets and any associated credit enhancement features, such as
senior/subordinated structures. To the extent the Company holds subordinated
securities, the Company generally bears all losses prior to the related senior
security holders. Generally, any losses in excess of the credit enhancement
obtained are borne by the security holders. Except in the case of a breach of
the standard representations and warranties made by the Company when mortgage
loans are securitized, such securities are non-recourse to the Company.
Typically, the Company has recourse to the sellers of loans for any such
breaches, but there are no assurance of the sellers' abilities to honor their
respective obligations.
 
  Ratings of mortgage-backed securities are based primarily upon the
characteristics of the pool of underlying mortgage loans and associated credit
enhancement. A decline in the credit quality of such pools (including
delinquencies and/or credit losses above initial expectations), or of any
third party credit enhancer, or adverse developments in general economic
trends affecting real estate values or the mortgage industry, could result in
downgrades of such ratings.
 
 
                                      53
<PAGE>
 
WAREHOUSE LENDING OPERATIONS
 
  The Company's third line of business is its Warehouse Lending Operations.
Such operations primarily consist of warehouse lending for approved mortgage
banks acting as correspondents of ICIFC and other mortgage banks. Generally,
the non-conforming mortgage loans funded with such warehouse lines of credit
are acquired by ICIFC. Warehouse lending facilities provide warehouse and
repurchase financing for mortgage loans from the time of closing the loan to
the time of its sale or other settlement with the pre-approved investor.
IWLG's warehouse lines are non-recourse and IWLG can only look to the sale or
liquidation of the mortgage loans as a source of repayment. Any claim of IWLG
as a secured lender in a bankruptcy proceeding may be subject to adjustment
and delay. Borrowings under the warehouse facilities are presented on the
Company's balance sheets as finance receivables.
 
  IWLG provides a $600 million warehouse line to ICIFC. The ICIFC warehouse
line balance outstanding on IWLG's balance sheet is structured to qualify
under the REIT asset tests and to generate income qualifying under the 75%
gross income test. The terms of the warehouse line are based on Bank of
America's prime rate with advance rates between 90% and 98% of the fair value
of the mortgage loans outstanding. The terms of IWLG's other warehouse lines
of credit, including the amount, are determined based upon the financial
strength, historical performance and other qualifications of the borrower. See
"--Long-Term Investment Operations--Financing--Reverse Repurchase Agreements."
 
  At September 30, 1996, IWLG had $673.5 million of warehouse lines of credit
available to 16 borrowers, of which $183.4 million was outstanding thereunder,
including $169.0 million outstanding to ICIFC. IWLG finances its Warehouse
Lending Operations through reverse repurchase agreements and equity. At
September 30, 1996, IWLG had entered into repurchase facilities with three
investment banks.
 
HEDGING
 
  The Company conducts certain hedging activities in connection with both its
Long-Term Investment Operations and its Conduit Operations.
   
  Long-Term Investment Operations. To the extent consistent with IMH's
election to qualify as a REIT, the Company follows a hedging program intended
to protect against interest rate changes and to enable the Company to earn net
interest income in periods of generally rising, as well as declining or
static, interest rates. Specifically, the Company's hedging program is
formulated with the intent to offset the potential adverse effects resulting
from (1) interest rate adjustment limitations on its mortgage loans and
securities backed by mortgage loans and (2) the differences between the
interest rate adjustment indices and interest rate adjustment periods of its
adjustable rate mortgage loans and mortgage-backed securities secured by such
loans and related borrowings. As part of its hedging program, the Company also
monitors on an ongoing basis the prepayment risks that arise in fluctuating
interest rate environments.     
 
  The Company's hedging program encompasses a number of procedures. First, the
Company structures its commitments to purchase mortgage loans so that the
mortgage loans purchased will have interest rate adjustment indices and
adjustment periods that, on an aggregate basis, correspond as closely as
practicable to the interest rate adjustment indices and interest rate
adjustment periods of the anticipated financing source. In addition, the
Company structures its borrowing agreements to have a range of different
maturities (although substantially all have maturities of less than one year).
As a result, the Company adjusts the average maturity of its borrowings on an
ongoing basis by changing the mix of maturities as borrowings come due and are
renewed. In this way, the Company minimizes any differences between interest
rate adjustment periods of mortgage loans and related borrowings that may
occur due to prepayments of mortgage loans or other factors.
 
  The Company may from time-to-time purchase interest rate caps to limit or
partially offset adverse changes in interest rates associated with its
borrowings. In a typical interest rate cap agreement, the cap purchaser makes
an initial lump sum cash payment to the cap seller in exchange for the
seller's promise to make cash payments to the purchaser on fixed dates during
the contract term if prevailing interest rates exceed the rate specified in
the contract. In this way, the Company generally hedges as much of the
interest rate risk arising from lifetime rate
 
                                      54
<PAGE>
 
caps on its mortgage loans and from periodic rate and/or payment caps as the
Company determines is in the best interests of the Company, given the cost of
such hedging transactions and the need to maintain IMH's status as a REIT.
Such periodic caps on the Company's mortgage loans may also be hedged by the
purchase of mortgage derivative securities. Mortgage derivative securities can
be effective hedging instruments in certain situations as the value and yields
of some of these instruments tend to increase as interest rates rise and tend
to decrease in value and yields as interest rates decline, while the
experience for others is the converse. The Company intends to limit its
purchases of mortgage derivative securities to investments that qualify as
Qualified REIT Assets or Qualified Hedges so that income from such investments
will constitute qualifying income for purposes of the 95% and 75% gross income
tests. See "Federal Income Tax Considerations--Taxation of IMH--Income Tests."
To a lesser extent, the Company, through its Conduit Operations, may enter
into interest rate swap agreements, buy and sell financial futures contracts
and options on financial futures contracts and trade forward contracts as a
hedge against future interest rate changes; however, the Company will not
invest in these instruments unless the Company and the Manager are exempt from
the registration requirements of the Commodity Exchange Act or otherwise
comply with the provisions of that Act. The REIT provisions of the Code may
restrict the Company's ability to purchase certain instruments and may
severely restrict the Company's ability to employ other strategies. See
"Federal Income Tax Considerations." In all its hedging transactions, the
Company intends to deal only with counterparties that the Company believes are
sound credit risks. During the nine months ended September 30, 1996 and the
year ended December 31, 1995, the Company had not purchased any interest rate
caps, swaps or other hedging instruments.
 
  Conduit Operations. In conducting its Conduit Operations, ICIFC is subject
to the risk of rising mortgage interest rates between the time it commits to
purchase mortgage loans at a fixed price and the time it sells or securitizes
those mortgage loans. To mitigate this risk, ICIFC enters into transactions
designed to hedge interest rate risks, which may include mandatory and
optional forward selling of mortgage loans or mortgage-backed securities,
interest rate caps, floors and swaps, and buying and selling of futures and
options on futures. The nature and quantity of these hedging transactions are
determined by the management of ICIFC based on various factors, including
market conditions and the expected volume of mortgage loan purchases.
 
  Costs and Limitations. The Company has implemented a hedging program
designed to provide a level of protection against interest rate risks.
However, an effective hedging strategy is complex, and no hedging strategy can
completely insulate the Company from interest rate risks. Moreover, as noted
above, certain of the federal income tax requirements that IMH must satisfy to
qualify as a REIT limit the Company's ability to fully hedge its interest rate
risks. The Company monitors carefully, and may have to limit, its hedging
strategies to assure that it does not realize excessive hedging income or hold
hedging assets having excess value in relation to total assets, which would
result in IMH's disqualification as a REIT or, in the case of excess hedging
income, the payment of a penalty tax for failure to satisfy certain REIT
income tests under the Code, provided such failure was for reasonable cause.
See "Federal Income Tax Considerations."
 
  In addition, hedging involves transaction and other costs, and such costs
increase dramatically as the period covered by the hedging protection
increases and also increase in periods of rising and fluctuating interest
rates. Therefore, the Company may be prevented from effectively hedging its
interest rate risks without significantly reducing the Company's return on
equity.
 
SERVICING AND MASTER SERVICING
 
  ICIFC currently acquires substantially all of its mortgage loans on a
"servicing-released" basis and thereby acquires the servicing rights. ICIFC
subcontracts all of its servicing obligations under such loans to independent
third parties pursuant to sub-servicing agreements. Servicing includes
collecting and remitting loan payments, making required advances, accounting
for principal and interest, holding escrow or impound funds for payment of
taxes and insurance, if applicable, making required inspections of the
mortgaged property, contacting delinquent borrowers and supervising
foreclosures and property dispositions in the event of unremedied defaults in
accordance with the Company's guidelines. Servicing fees generally range from
0.250% to 0.500% per annum on the declining principal balances of the loans
serviced.
 
                                      55
<PAGE>
 
  The following table sets forth certain information regarding ICIFC's
servicing portfolio of loans for the periods shown.
<TABLE>
<CAPTION>
                                                                 PERIOD FROM
                                                              NOVEMBER 20, 1995
                                           NINE MONTHS ENDED       THROUGH
                                           SEPTEMBER 30, 1996 DECEMBER 31, 1995
                                           ------------------ -----------------
                                                      (IN MILLIONS)
<S>                                        <C>                <C>
Beginning servicing portfolio.............      $  512.1           $  -- (1)
Loans added to the servicing portfolio....       1,025.8            540.6
Loans sold servicing released and
 principal paydowns.......................        (363.5)           (28.5)
                                                --------           ------
Ending servicing portfolio................      $1,174.4           $512.1
                                                ========           ======
</TABLE>
- --------
(1) Pursuant to the Contribution Transaction, ICII retained ICIFC's servicing
    portfolio at November 20, 1995.
 
  In the future, ICIFC expects to offer its sellers of mortgage loans the
right to retain servicing. However, in connection with its warehouse line from
IWLG, any such servicers of the mortgage loans would have to be approved by
IWLG. In the case of servicing retained mortgage loans, the Company will enter
into agreements (the "Servicing Agreements") with the sellers of mortgage
loans to service the mortgage loans they sell to the Company. Each Servicing
Agreement will require the servicer to service the Company's mortgage loans in
a manner generally consistent with FNMA and FHLMC guidelines and procedures
and with any servicing guidelines promulgated by the Company. Each servicer
will collect and remit principal and interest payments, administer mortgage
escrow accounts, submit and pursue insurance claims and initiate and supervise
foreclosure proceedings on the mortgage loans so serviced. Each servicer will
also provide accounting and reporting services required by the Company for
such loans. The servicer will be required to follow such collection procedures
as are customary in the industry. The servicer may, at its discretion, arrange
with a defaulting borrower a schedule for the liquidation of delinquencies,
provided primary mortgage insurance coverage is not adversely affected. Each
Servicing Agreement will provide that the servicer may not assign any of its
obligations with respect to the mortgage loans serviced for the Company,
except with the Company's consent.
 
  Each servicer will be required to pay all expenses related to the
performance of its duties under its Servicing Agreement. The servicer will be
required to make advances of principal and interest, taxes and required
insurance premiums that are not collected from borrowers with respect to any
mortgage loan, only if the servicer determines that such advances are
recoverable from the mortgagor, insurance proceeds or other sources with
respect to such mortgage loan. If such advances are made, the servicer
generally will be reimbursed prior to the Company receiving the remaining
proceeds. The servicer also will be entitled to reimbursement by the Company
for expenses incurred by it in connection with the liquidation of defaulted
mortgage loans and in connection with the restoration of mortgaged property.
If claims are not made or paid under applicable insurance policies or if
coverage thereunder has ceased, the Company suffers a loss to the extent that
the proceeds from liquidation of the mortgaged property, after reimbursement
of the servicer's expenses in the sale, are less than the principal balance of
the related mortgage loan. The servicer will be responsible to the Company for
any loss suffered as a result of the servicer's failure to make and pursue
timely claims or as a result of actions taken or omissions made by the
servicer which cause the policies to be canceled by the insurer. Each servicer
will be required to represent and warrant that the mortgage loans it services
comply with any loan servicing guidelines promulgated by the Company and agree
to repurchase, at the request of the Company, any mortgage loan it services in
the event that the servicer fails to make such representations or warranties
or any such representation or warranty is untrue.
 
  The Company may terminate a Servicing Agreement with any servicer upon the
happening of one or more of the events specified in the Servicing Agreement.
Such events relate generally to the servicer's proper and timely performance
of its duties and obligations under the Servicing Agreement and the servicer's
financial stability. In addition, the Company will have the right to terminate
any Servicing Agreement without cause upon 30 days' notice and upon payment of
a termination fee that is competitive with that which is obtainable generally
in the industry. The termination fee will be based on the aggregate
outstanding principal amount of the loans then serviced under the agreement.
With respect to mortgage loans that support CMOs or other mortgage-backed
securities, the Company may not be able to terminate a servicer without the
approval of the trustee or bond insurer for such securities.
 
                                      56
<PAGE>
 
  As is customary in the mortgage loan servicing industry, servicers will be
entitled to retain any late payment charges, penalties and assumption fees
collected in connection with the mortgage loans. The servicers will receive
any benefit derived from interest earned on collected principal and interest
payments between the date of collection and the date of remittance to the
Company and from interest earned on tax and insurance impound funds. The
servicer will generally be required to remit to the Company no later than the
18th day of each month all principal and interest due from borrowers on the
first day of such month.
 
  The Company expects from time to time to retain master servicing fees
receivable. See"--Servicing and Master Servicing." Master servicing fees
receivable have characteristics similar to "interest-only" securities;
accordingly, they have many of the same risks inherent in "interest-only"
securities, including the risk that they will lose a substantial portion of
their value as a result of rapid prepayments occasioned by declining interest
rates. Master servicing fees receivable represent the present value of the
difference between the interest rate on mortgage loans purchased by the
Conduit Operations and the interest rate received by investors who purchase
the securities backed by such loans, in excess of the normal loan servicing
fees charged by either (1) the Conduit Operations on loans acquired "servicing
released" or (2) correspondents who sold loans to the Conduit Operations with
the "servicing retained" (the "Excess Servicing Fees"). At September 30, 1996
and December 31, 1995, the Company had no master servicing fees receivable.
 
  To the extent that servicing fees on a mortgage loan exceed a "normal"
servicing fee (typically ranging from 0.250% to 0.500% per annum of the
mortgage loan principal amount), the Conduit Operations will generate master
servicing fees receivable as an asset that represents an estimated present
value of those excess fees assuming a certain prepayment rate on the mortgage
loan. In determining present value of future cash flows, the Conduit
Operations will use a market discount rate. Prepayment assumptions will be
based on recent evaluations of the actual prepayments of the Conduit
Operations' servicing portfolio or on market prepayment rates on new
portfolios on which the Conduit Operations has no experience and the interest
rate environment at the time the master servicing fees receivable are created.
There can be no assurance of the accuracy of management's prepayment
estimates. If actual prepayments with respect to sold mortgage loans occur
more quickly than was projected at the time such mortgage loans were sold, the
carrying value of the master servicing fees receivable may have to be written
down through a charge to earnings in the period of adjustment. If actual
prepayments with respect to sold mortgage loans occur more slowly than
estimated, the carrying value of master servicing fees receivable on the
Company's statement of financial condition would not increase, although total
income would exceed previously estimated amounts.
 
  Management of the Company believes that, depending upon the level of
interest rates from time to time, investments in current coupon master
servicing fees receivable may be prudent, and if interest rates rise, these
investments will mitigate declines in income that may occur in the Conduit
Operations. ICIFC intends to hold the master servicing fees receivable for
investment. Currently the secondary market for master servicing fees
receivable is limited. Accordingly, if ICIFC had to sell these receivables,
the value received may or may not be at or above the values at which ICIFC
carried them on its balance sheet.
   
  When the Conduit Operations purchases loans which include the associated
servicing rights, the allocated price paid for the servicing rights is
reflected on its financial statements as MSRs. MSRs differ from master
servicing fees receivable primarily by the required amount of servicing to be
performed, the loss exposure to the owner of the instrument and the financial
liquidity of the instrument. In contrast to MSRs, where the owner of the
instrument acts as the servicer, master servicing fees receivable do not
require the owner of the instrument to service the underlying mortgage loan.
In addition, master servicing fees receivable subject their owners to greater
loss exposure from delinquencies or foreclosure on the underlying mortgage
loans than MSRs because a master servicer stands behind the servicer (or sub-
servicer) and potentially the owner of the mortgage loan in priority of
payment. Both MSRs and master servicing fees receivable are purchased and sold
in the secondary markets. However, MSRs are generally more liquid and can be
sold at less of a discount as compared to master servicing fees receivable. At
September 30, 1996 and December 31, 1995, ICIFC had $7.5 million and none,
respectively, of MSRs.     
 
                                      57
<PAGE>
 
  ICIFC generally performs the function of master servicer with respect to
mortgage loans it sells or securitizes. The master servicer's function
includes collecting loan payments from servicers of loans and remitting loan
payments, less master servicing fees receivable and other fees, to a trustee
or other purchaser for each series of mortgage-backed securities or loans
master serviced. In addition, as master servicer, ICIFC monitors compliance
with its servicing guidelines and is required to perform, or to contract with
a third party to perform, all obligations not adequately performed by any
servicer. A master servicer typically employs servicers to carry out servicing
functions. Servicers typically perform servicing functions for the master
servicer as independent contractors. ICIFC is the master servicer for
$658.2 million of loans collateralizing fixed rate REMIC securities and $567.0
million of loans collateralizing CMOs issued in 1996. In addition, ICIFC acts
as the servicer for all such loans and all other loans acquired by the Long-
Term Investment Operations. With respect to its function as a servicer for
loans owned by IMH, ICIFC and IMH have entered into a Servicing Agreement
effective on November 20, 1995 having terms substantially similar to those
described above for servicing agreements.
 
  The following table shows ICIFC's delinquency statistics for its servicing
portfolio at the dates presented.
 
<TABLE>
<CAPTION>
                                          AT SEPTEMBER 30,     AT DECEMBER 31,
                                                1996                1995
                                         ------------------- -------------------
                                                     % OF                % OF
                                         NUMBER OF SERVICING NUMBER OF SERVICING
                                           LOANS   PORTFOLIO   LOANS   PORTFOLIO
                                         --------- --------- --------- ---------
<S>                                      <C>       <C>       <C>       <C>
Loans delinquent for:
  30-59 days............................    402      4.67%       26      0.74%
  60-89 days............................    99       1.15        --        --
  90 days+..............................    120      1.39        --        --
                                            ---      ----       ---      ----
    Total Delinquencies.................    621      7.21%       26      0.74%
                                            ===      ====       ===      ====
</TABLE>
 
  The loans purchased by the Company since the Contribution Transaction and
thereafter securitized and sold in the secondary market have not been
outstanding for any periods commencing earlier than November 20, 1995.
Consequently, the Company's delinquency and foreclosure experience to date may
not be indicative of future results.
 
  During periods of declining interest rates, prepayments of mortgage loans
increase as homeowners look to refinance at lower rates, resulting in a
decrease in the value of the Company's mortgage servicing rights. Mortgage
loans with higher interest rates are more likely to result in prepayments. For
a discussion regarding how prepayments may affect the Company's operations,
see "Risk Factors--Changes in Interest Rates; Prepayment Risks." The following
table sets forth certain information regarding the number of and aggregate
principal balance of the mortgage loans, net of premium, serviced by ICIFC,
including both fixed and adjustable rate loans, at various mortgage interest
rates.
 
 
                                      58
<PAGE>
 
<TABLE>   
<CAPTION>
                               AT SEPTEMBER 30, 1996             AT DECEMBER 31, 1995
                         --------------------------------- --------------------------------
                                  AGGREGATE    WEIGHTED             AGGREGATE   WEIGHTED
                          NUMBER  PRINCIPAL     AVERAGE     NUMBER  PRINCIPAL    AVERAGE
INTEREST RATES(%)        OF LOANS  BALANCE   INTEREST RATE OF LOANS  BALANCE  INTEREST RATE
- -----------------        -------- ---------- ------------- -------- --------- -------------
                              (DOLLARS IN THOUSANDS)            (DOLLARS IN THOUSANDS)
<S>                      <C>      <C>        <C>           <C>      <C>       <C>
 Less than 5.00%........      1   $       48      4.75%       --    $    --         -- %
 5.00-5.49..............      2          261      5.08        --         --         --
 5.50-5.99..............      3          600      5.67          6        976       5.74
 6.00-6.49..............      2          265      6.33         84     12,014       6.22
 6.50-6.99..............     14        1,868      6.71         85     13,693       6.68
 7.00-7.49..............     44        7,604      7.28        146     29,157       7.22
 7.50-7.99..............    239       40,948      7.76        505     96,681       7.71
 8.00-8.49..............  1,293      237,856      8.25        727    132,122       8.20
 8.50-8.99..............  2,269      372,165      8.69        797    133,324       8.70
 9.00-9.49..............  1,525      237,337      9.17        218     33,031       9.17
 9.50-9.99..............    978      132,044      9.65        108     16,939       9.68
 10.00-10.49............    326       39,529     10.15         49      6,240      10.14
 10.50-10.99............    257       26,403     10.67         55      6,832      10.66
 11.00-11.49............    103        9,296     11.18         11      1,481      11.11
 11.50 and above........  1,561       68,210     13.28        742     29,637      13.53
                          -----   ----------                -----   --------
                          8,617   $1,174,434      9.14%     3,533   $512,127       8.58%
                          =====   ==========                =====   ========
</TABLE>    
 
  The following table sets forth the geographic distribution of ICIFC's
servicing portfolio.
 
<TABLE>
<CAPTION>
                         AT SEPTEMBER 30, 1996         AT DECEMBER 31, 1995
                     ----------------------------- ----------------------------
                                           % OF                         % OF
                              AGGREGATE  AGGREGATE          AGGREGATE AGGREGATE
                      NUMBER  PRINCIPAL  PRINCIPAL  NUMBER  PRINCIPAL PRINCIPAL
STATES               OF LOANS  BALANCE    BALANCE  OF LOANS  BALANCE   BALANCE
- ------               -------- ---------- --------- -------- --------- ---------
                        (DOLLARS IN THOUSANDS)        (DOLLARS IN THOUSANDS)
<S>                  <C>      <C>        <C>       <C>      <C>       <C>
 California.........  4,154   $  664,004   56.54%   2,175   $356,931    69.70%
 Florida............  1,010      107,734    9.17      181     19,958     3.90
 New Jersey.........    755       98,384    8.38      152     18,848     3.68
 Washington.........    329       31,686    2.70      186     21,522     4.20
 Oregon.............    290       26,463    2.25      159     17,433     3.40
 Colorado...........    235       28,345    2.41      155     20,634     4.03
 New York...........    239       44,729    3.81       39      5,663     1.11
 Utah...............    141       15,345    1.31       71      5,404     1.06
 Nevada.............    176       15,204    1.29       41      4,458     0.87
 Maryland...........    121       13,534    1.15       64      6,008     1.17
 North Carolina.....    126       15,387    1.31       21      2,406     0.45
 Others (1).........  1,041      113,619    9.68      289     32,862     6.43
                      -----   ----------  ------    -----   --------   ------
                      8,617   $1,174,434  100.00%   3,533   $512,127   100.00%
                      =====   ==========  ======    =====   ========   ======
</TABLE>
- --------
(1) No other state accounted for greater than 1% of the Company's mortgage
    loan servicing portfolio.
 
REGULATION
 
  The rules and regulations applicable to the Conduit Operations, among other
things, prohibit discrimination and establish underwriting guidelines that
include provisions for inspections and appraisals, require credit reports on
prospective borrowers and fix maximum loan amounts. Mortgage loan acquisition
activities are subject to, among other laws, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act and
the regulations promulgated thereunder that prohibit discrimination and
require the disclosure of certain basic information to mortgagors concerning
credit terms and settlement costs.
 
  ICIFC is an approved FNMA and FHLMC seller/servicer. The Conduit Operations
is subject to the rules and regulations of FNMA and FHLMC with respect to
acquiring, processing, selling and servicing conforming
 
                                      59
<PAGE>
 
mortgage loans. In addition, ICIFC is required annually to submit to FNMA and
FHLMC audited financial statements, and each regulatory entity has its own
financial requirements for sellers/servicers. For any conforming mortgage loan
activities, ICIFC's affairs are also subject to examination by FNMA and FHLMC
at any time to assure compliance with the applicable regulations, policies and
procedures.
 
  Additionally, there are various state and local laws and regulations
affecting the Conduit Operations. ICIFC is licensed in those states requiring
such a license. Mortgage operations also may be subject to applicable state
usury statutes. The Company is presently in material compliance with all
material rules and regulations to which it is subject.
 
COMPETITION
 
  In purchasing non-conforming mortgage loans and issuing securities backed by
such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance companies,
other lenders and other entities purchasing mortgage assets. Continued
consolidation in the mortgage banking industry may also reduce the number of
current sellers to the Conduit Operations, thus reducing the Company's
potential customer base, resulting in ICIFCs purchasing a larger percentage of
mortgage loans from a smaller number of sellers. Such changes could negatively
impact the Conduit Operations. Mortgage-backed securities issued by the
Conduit Operations and the Long-Term Investment Operations face competition
from other investment opportunities available to prospective investors.
 
  The Company faces competition in its Conduit Operations and Warehouse
Lending Operations from other financial institutions, including but not
limited to banks and investment banks. Many of the institutions with which the
Company competes in its Conduit Operations and Warehouse Lending Operations
have significantly greater financial resources than the Company.
   
  The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPTL may
compete with the Company as this activity is not restricted by the Non-Compete
Agreement. Also, SPFC is a subsidiary of ICII whose business is primarily to
act as a wholesale originator and a bulk purchaser of non-conforming mortgage
loans. These activities are not restricted by the Non-Compete Agreement. In
addition, after the expiration of the Non-Compete Agreement in November, 1997,
ICII or any 25% entity may compete with the Company's Long-Term Investment
Operations, the Conduit Operations and the Warehouse Lending Operations. While
the Company believes such activities will not have a material adverse effect
on the Company's operations there can be no assurance of this. See "Certain
Transactions--The Contribution Transaction."     
 
EMPLOYEES
 
  As of September 30, 1996, ICIFC and IWLG employed 91 and five persons,
respectively. As part of the transition from a division or subsidiary of ICII
to ICIFC, some employees are shared by ICII and ICIFC, although ICII and ICIFC
expect such sharing to end prior to December 31, 1996. Expenses associated
with these employees are shared by both parties in relation to the time spent
working for each entity. The Company believes that relations with its
employees are good. The Company is not a party to any collective bargaining
agreement.
 
FACILITIES
 
  The Company's executive offices and administrative facilities occupy
approximately 10,000 square feet of space in Santa Ana Heights, California.
The Company subleases its facilities from ICII pursuant to a sublease
agreement expiring in 2002 at an aggregate monthly rental of approximately
$12,900. The terms of the sublease allow for increases in rent as dictated by
the master lease. Management believes that the terms of the sublease are at
least as favorable as could have been obtained from an unaffiliated third
party. Management believes that
 
                                      60
<PAGE>
 
these facilities are adequate for the Company's foreseeable needs and that
alternate space at comparable rental rates is available, if necessary.
 
LEGAL PROCEEDINGS

  ComUnity National Asset Corporation, a Maryland corporation v. Thomas O.
Markel, Jr., an individual; Homemac Mortgage Bankers, a business association
of unknown form; Homemac Corporation, a California corporation; Homemac
Finance Corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
and DOES 1 through 100, inclusive, Orange County Superior Court Case No.
761786.
 
  On April 1, 1996, ComUnity National Asset Corporation ("ComUnity") filed a
lawsuit in Orange County Superior Court against Thomas O. Markel, Jr., several
Homemac entities, and IMH. The complaint seeks damages for statutory and
common law misappropriation of trade secrets, restitution for unfair
competition, and damages for negligence and conversion.
 
  ComUnity seeks damages in an unspecified amount, but in no event less than
$200,000, alleging that said amount is not less than the amount spent and/or
obligations incurred by ComUnity in setting up its business and organizational
plan to become a REIT dealing primarily in B and C grade mortgage loans and to
take ComUnity public in an initial public offering, together with punitive
damages. ComUnity is also seeking attorneys' fees and costs. ComUnity alleges
that IMH wrongfully received consideration in the form of, among other things,
reduced expenses and legal fees, salary, wages, stock options, and other forms
of consideration arising out of the commercial exploitation of ComUnity
confidential information, and that ComUnity is also entitled to an order of
restitution compelling IMH and the other defendants to pay to ComUnity all
profits from the commercial exploitation of information allegedly received
from ComUnity. The Company believes that the complaint is without merit and
intends to vigorously defend the action.
 
  Michele Perrin, an individual doing business as Perrin and Associates vs.
Thomas O. Markel, an individual; H. Wayne Snavely, an individual; Homemac
Mortgage Bankers, a business association of unknown form; Homemac Corporation,
a California corporation; Homemac Finance Corporation, a California
corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
Imperial Credit Industries, Inc., a California corporation and DOES 1 through
100, Orange County Superior Court Case No. 768878.
 
  On September 12, 1996, Michele Perrin ("Perrin") filed the aforementioned
complaint seeking damages for statutory and common law misappropriation of
trade secrets, restitution for unfair competition, and damages for negligence
and conversion.
   
  Perrin seeks damages in an unspecified amount, but in no event less than
$200,000, alleging that said amount is not less than the amount spent and/or
obligations incurred by Perrin in setting up her business and organizational
plan to become a REIT dealing primarily in "B" and "C" grade mortgage loans
and to take Perrin's business public in an initial public offering, together
with punitive damages. Perrin is also seeking attorneys' fees and costs.
Perrin alleges that IMH wrongfully received consideration in the form of,
among other things, reduced expenses and legal fees, salary, wages, stock
options, and other forms of consideration arising out of the commercial
exploitation of Perrin's confidential information, and that Perrin is also
entitled to an order of restitution compelling IMH and the other defendants to
pay to Perrin all profits from the commercial exploitation of information
allegedly received from Perrin. The Company believes that the complaint is
without merit and intends to vigorously defend the action.     
 
  Other than the foregoing, the Company is not a party to any material legal
proceedings.
 
                                      61
<PAGE>
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The Company was incorporated in the State of Maryland on August 28, 1995.
The following table sets forth certain information with respect to the
directors and executive officers of IMH, ICIFC and IWLG:
 
<TABLE>
<CAPTION>
 NAME                                 AGE POSITION
 ----                                 --- --------
 <C>                                  <C> <S>
 H. Wayne Snavely....................  54 Chairman of the Board of IMH
 Joseph R. Tomkinson.................  49 Vice Chairman of the Board and Chief
                                          Executive Officer of IMH and Chairman
                                          of the Board and Chief Executive
                                          Officer of ICIFC and IWLG
 William S. Ashmore..................  46 President and Chief Operating Officer
                                          of IMH, Executive Vice President and
                                          Director of ICIFC
                                          and President and Director of IWLG
 Richard J. Johnson..................  34 Senior Vice President, Chief
                                          Financial Officer, Treasurer and
                                          Secretary of IMH, ICIFC and IWLG and
                                          Director of ICIFC
 Mary C. Glass.......................  42 Vice President of IMH and Senior Vice
                                          President, Operations, of ICIFC and
                                          IWLG
 James Walsh+........................  45 Director of IMH
 Frank P. Filipps+...................  48 Director of IMH
 Stephan R. Peers+...................  43 Director of IMH
</TABLE>
- --------
+Unaffiliated Director
 
  H. WAYNE SNAVELY has been Chairman of the Board of IMH since its formation.
He has been Chairman of the Board and Chief Executive Officer of ICII since
December 1991. Mr. Snavely is also Chairman of the Board of ICAI, the Manager
and SPFC, a subsidiary of ICII. He has been a Director of Imperial Bancorp and
Imperial Bank since 1993, and was also a Director of Imperial Bank from 1975
to 1983. From 1983 to February 1991, Mr. Snavely served as Executive Vice
President of Imperial Bancorp and Imperial Bank with direct management
responsibility for the following bank subsidiaries and divisions: Imperial
Bank Mortgage, Southern Pacific Thrift and Loan, Imperial Trust Company, Wm.
Mason & Company, Imperial Ventures, Inc. and The Lewis Horwitz Organization.
From 1983 through 1986, Mr. Snavely was employed as Chief Financial Officer of
Imperial Bancorp and Imperial Bank.
 
  JOSEPH R. TOMKINSON has been Vice Chairman of the Board and Chief Executive
Officer of IMH and Chairman of the Board and Chief Executive Officer of ICIFC
and IWLG since their formation. Mr. Tomkinson is also Vice Chairman of the
Board of ICAI, the Manager. Mr. Tomkinson served as President of ICII from
January 1992 to February 1996 and, from 1986 to January 1992, he was President
of Imperial Bank Mortgage, a subsidiary of Imperial Bank, one of the companies
that combined to become ICII in 1992. Mr. Tomkinson has been a Director of
ICII since December 1991. From 1984 to 1986, he was employed as Executive Vice
President of Loan Production for American Mortgage Network, a privately owned
mortgage banker. Mr. Tomkinson brings 21 years of combined experience in real
estate, real estate financing and mortgage banking to the Company.

  WILLIAM S. ASHMORE has been President and Chief Operating Officer of IMH and
Executive Vice President and a Director of ICIFC and IWLG since their
formation. From August 1993 to February 1996, he was Executive Vice President
and a Director of Secondary Marketing at ICII, having been its Senior Vice
President of Secondary Marketing since January 1988. From 1985 to 1987, he was
Chief Executive Officer and Vice Chairman of the Board of Century National
Mortgage Corporation, a wholesale mortgage banking company. From 1978 to 1985,
Mr. Ashmore was President and co-owner of Independent Homes Real Estate
Company, which evolved in 1980 into a mortgage banking firm that was sold to
Century National Bank in 1985. Mr. Ashmore has over 20 years of combined
experience in real estate, real estate financing and mortgage banking.
 
                                      62
<PAGE>
 
  RICHARD J. JOHNSON has been Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of IMH, IWLG, and ICIFC since their formation. In
March of 1996, Mr. Johnson was appointed as a Director of ICIFC. From March
1995 to March 1996, Mr. Johnson was Chief Financial Officer of ICAI, the
Manager. From September 1992 to March 1995, Mr. Johnson was Senior Vice
President and Chief Financial Officer of ICII. From November 1989 to September
1992, Mr. Johnson was Vice President and Controller of ICII. From February
1988 to October 1989, he was Vice President and Chief Financial Officer of
Bayhill Service Corporation, a mortgage banking company, and Vice President of
Capital Savings and Loan, the parent of Bayhill Service Corporation. From
January 1987 to February 1988, Mr. Johnson was Vice President of Finance for
Merrill Lynch Huntoon Paige, Inc., a mortgage banking subsidiary of Merrill
Lynch Capital Markets. Mr. Johnson is a Certified Public Accountant.
 
  MARY C. GLASS has been Vice President of IMH and Senior Vice President,
Operations, of ICIFC and IWLG since their formation. From April 1995 through
November 1996, Ms. Glass was the Senior Vice President and Managing Director
of Imperial Capital Markets Group, a division of ICII, and from February 1993
to April 1995, she was Senior Vice President of ICIFC, a division of ICII.
From 1991 through 1993, Ms. Glass acted as a mortgage banking consultant. From
1990 through 1991, she was an Executive Vice President at PriMerit Mortgage
Corporation. From 1988 to 1990, Ms. Glass was President of SCS Mortgage. From
September 1984 through September 1988, Ms. Glass was Senior Vice President of
Concor Financial Services.
 
  JAMES WALSH has been a Director of the Company since August 1995. Mr. Walsh
is an Executive Vice President of Walsh Securities, Inc. where he directs
mortgage loan production, sales and securitization. Mr. Walsh was an executive
of Donaldson, Lufkin and Jenrette Securities Corporation from January 1989
through March 1996 where he oversaw residential mortgage securitization,
servicing brokerage and mortgage banking services. From February 1987 to
December 1988, Mr. Walsh was an executive in the mortgage banking department
at Bear Stearns & Company. From December 1985 to February 1987, Mr. Walsh was
a senior banking officer at Carteret Savings Bank.
 
  FRANK P. FILIPPS has been a Director of the Company since August 1995. Mr.
Filipps was elected President of CMAC Investment Corporation and Chairman,
President and Chief Executive Officer of Commonwealth Mortgage Assurance
Company ("CMAC") in January 1995. Mr. Filipps joined CMAC in 1992 as Senior
Vice President and Chief Financial Officer, where he was responsible for the
company's financial, investment and data processing operations, as well as the
legal and human resources functions. In 1994, Mr. Filipps was promoted to
Executive Vice President and Chief Operating Officer for both CMAC Investment
Corporation and CMAC, where his additional responsibilities included the
company's sales, marketing, underwriting and risk management. In 1975, Mr.
Filipps joined American International Group and, from 1989 to 1992, he was
Vice President and Treasurer. Prior to that, he was a Second Vice President
for Chase Manhattan Bank, N.A., in New York.
 
  STEPHAN R. PEERS has been a Director of the Company since October 1995.
Since April 1993, Mr. Peers has been an Executive Vice President of
International Strategic Finance Corporation, Ltd., where he performs corporate
finance services for overseas issuers. From April 1989 to April 1993, Mr.
Peers was a Vice President in corporate finance at Montgomery Securities where
he specialized in financial services institutions. From March 1987 to March
1989, Mr. Peers was a Vice President at The First Boston Corporation in
mortgage finance specializing in mortgage related products. Mr. Peers has
served as a Managing Director of Resource Bancshares Corporation since August
1995.
 
  All directors are elected at each annual meeting of the Company's
stockholders until the next annual meeting of stockholders and until their
successors are elected and qualify. Replacements for vacancies occurring among
the Unaffiliated Directors will be elected by a majority vote of the remaining
Directors, including a majority of the Unaffiliated Directors. All officers
are elected and may be removed by the Board of Directors. The Company pays an
annual director's fee to each Unaffiliated Director equal to $20,000 and
reimburses such Directors' costs and expenses for attending Board meetings.
 
                                      63
<PAGE>
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
 
  The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his status as a present or former director or officer of the Company. The
Bylaws of the Company obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company.
 
  The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (1) was committed in bad faith or (2) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (b) a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the Company if it shall ultimately be determined
that the standard of conduct was not met. The Company has entered into
indemnification agreements with all of its officers and directors which
provide for the indemnification of such officers and directors to the fullest
extent permitted under Maryland law. Insofar as indemnification by the Company
for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Company pursuant to the
indemnity agreements referenced herein or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
 
EXECUTIVE COMPENSATION
 
  From November 20, 1995 to December 31, 1995, none of the executive officers
of the Company earned more than $100,000 in total compensation. However, the
following table contains information on the annual cash
 
                                      64
<PAGE>
 
compensation to be paid to the executive officers of the Company for the year
ending December 31, 1996 for services rendered.
 
<TABLE>
<CAPTION>
 NAME OF INDIVIDUAL             CAPACITIES IN WHICH SERVED              CASH COMPENSATION (1)
 ------------------             --------------------------              ---------------------
 <C>                 <S>                                                <C>
 Joseph R. Tomkinson Vice Chairman of the Board and Chief Executive           $250,000 (2)(3)(4)
                     Officer of IMH and Chairman of the Board and
                     Chief Executive Officer of ICIFC and IWLG
 William S. Ashmore  President and Chief Operating Officer of IMH and         $200,000 (2)(3)(4)
                     Executive Vice President of ICIFC and IWLG
 Richard J. Johnson  Senior Vice President, Chief Financial Officer,          $100,000 (2)(3)
                     Treasurer and Secretary of IMH, ICIFC and IWLG
 Mary C. Glass       Vice President of IMH and Senior Vice-President,         $ 90,000 (2)(3)
                     Operations, of ICIFC and IWLG
</TABLE>
- --------
(1) Pursuant to the Management Agreement, the Company will reserve up to 1/5
    of the Company's 25% Incentive Payment (see "Imperial Credit Advisors,
    Inc.--The Management Agreement--Management Fees") for distribution as
    bonuses to its employees in amounts to be determined by the Company's
    Board of Directors. Such payment shall be made in lieu of payment of a
    like amount to the Manager under the Management Agreement.
(2) On November 20, 1995, each of the persons in the above table entered into
    a five-year employment agreement at an annual salary as stated in the
    table, subject to adjustment for inflation, plus bonuses described in
    footnote (3) and in the case of Messrs. Tomkinson and Ashmore those
    additional bonuses described in footnote (4).
(3) Each of the persons in the above table is entitled to be paid a quarterly
    bonus equal to the aggregate dividend such person would have received from
    the Company on all shares of Common Stock underlying unexercised stock
    options held by such person which were outstanding as of the date of the
    Initial Public Offering and on the date of payment of said bonus, provided
    however that (i) quarterly bonuses will be paid for the fourth calendar
    quarter of 1996 and the first three next calendar quarters of 1997 and
    thereafter only if the dividend that would be payable by the Company on
    shares of its Common Stock for the subject quarter after payment of all
    such quarterly bonuses equals or exceeds fifteen percent (15%) (on an
    annualized basis) of $13.00 and (ii) quarterly bonuses will be paid for
    each calendar quarter thereafter, if the dividend that would be payable by
    the Company on shares of its Common Stock for the subject quarter equals
    or exceeds such level as determined by a majority of the Unaffiliated
    Directors. Such persons will not be required to refund any portion of such
    bonuses previously earned regardless of the level of dividends in
    subsequent quarters. For the nine months ended September 30, 1996, Messrs.
    Tomkinson, Ashmore and Johnson and Ms. Glass were entitled to bonuses of
    $129,200, $68,000, $34,000 and $34,000, respectively, related to such
    stock options.
(4) Messrs. Tomkinson and Ashmore are each entitled to performance and
    profitability bonuses, in no event to exceed their respective base
    salaries. For the nine months ended September 30, 1996, Messrs. Tomkinson
    and Ashmore received bonuses of $249,847 and $99,939.
 
STOCK OPTIONS
 
  The Company has adopted a Stock Option, Deferred Stock and Restricted Stock
Plan (the "Stock Option Plan"), which provides for the grant of qualified
incentive stock options ("ISOs") that meet the requirements of Section 422 of
the Code, stock options not so qualified ("NQSOs") and deferred stock,
restricted stock, stock appreciation rights and limited stock appreciation
rights awards ("Awards"). The Stock Option Plan is administered by a committee
of directors appointed by the Board of Directors (the "Committee"). ISOs may
be granted to the officers and key employees of the Company. NQSOs and Awards
may be granted to the directors, officers and key employees of the Company or
any of its subsidiaries, to the directors, officers and key employees of the
Manager, or to the Manager itself, and to the directors, officers and key
employees of ICIFC. The exercise
 
                                      65
<PAGE>
 
price for any option granted under the Stock Option Plan may not be less than
100% (or 110% in the case of ISOs granted to an employee who is deemed to own
in excess of 10% of the outstanding Common Stock) of the fair market value of
the shares of Common Stock at the time the option is granted. The purpose of
the Stock Option Plan is to provide a means of performance-based compensation
in order to attract and retain qualified personnel and to provide an incentive
to those whose job performance affects the Company. The effective date of the
Stock Option Plan was August 31, 1995.
 
  Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option Plan authorizes the grant of options to
purchase, and Awards of, up to 800,000 shares. If an option granted under the
Stock Option Plan expires or terminates, or an Award is forfeited, the shares
subject to any unexercised portion of such option or Award will again become
available for the issuance of further options or Awards under the Stock Option
Plan.
 
  Under the Stock Option Plan, the Company may make loans available to stock
option holders, subject to Board of Directors' approval, in connection with
the exercise of stock options granted under the Stock Option Plan. If shares
of Common Stock are pledged as collateral for such indebtedness, such shares
may be returned to the Company in satisfaction of such indebtedness. If so
returned, such shares shall again be available for issuance in connection with
future stock options and Awards under the Stock Option Plan.
 
  Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the Stock Option Plan after August 31, 2005.
 
  Options granted under the Stock Option Plan will become exercisable in
accordance with the terms of the grant made by the Committee. Awards will be
subject to the terms and restrictions of the award made by the Committee. The
Committee has discretionary authority to select participants from among
eligible persons and to determine at the time an option or Award is granted
and, in the case of options, whether it is intended to be an ISO or a NQSO,
and when and in what increments shares covered by the option may be purchased.
 
  Under current law, ISOs may not be granted to any individual who is not also
an officer or employee of the Company. To ensure that IMH qualifies as a REIT,
the Stock Option Plan provides that no options may be granted under the Stock
Option Plan to any person who, assuming exercise of all options held by such
person, would own or be deemed to own more than 9.5% of the outstanding shares
of Common Stock of IMH.
 
  Each option must terminate no more than 10 years from the date it is granted
(or 5 years in the case of ISOs granted to an employee who is deemed to own in
excess of 10% of the combined voting power of the Company's outstanding Common
Stock). Options may be granted on terms providing for exercise in whole or in
part at any time or times during their respective terms, or only in specified
percentages at stated time periods or intervals during the term of the option,
as determined by the Committee.
 
  The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
Stock Option Plan, (3) by cancellation of indebtedness owed by the Company to
the option holder, (4) by a full recourse promissory note executed by the
option holder, or (5) by any combination of the foregoing. The terms of any
promissory note may be changed from time to time by the Board of Directors to
comply with applicable Service or Commission regulations or other relevant
pronouncements.
 
  The Board of Directors may from time to time revise or amend the Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without his consent or may, without stockholder approval,
increase the number of shares subject to the Stock Option Plan or decrease the
exercise price of a stock option to less than 100% of fair market value on the
date of grant (with the exception of adjustments resulting from changes in
capitalization),
 
                                      66
<PAGE>
 
materially modify the class of participants eligible to receive options or
Awards under the Stock Option Plan, materially increase the benefits accruing
to participants under the Stock Option Plan or extend the maximum option term
under the Stock Option Plan.
 
  The following table sets forth the stock options granted to the Company's
current executive officers under the Stock Option Plan as of December 31,
1995:
 
<TABLE>
<CAPTION>
                                      INDIVIDUAL GRANTS
                         --------------------------------------------
                                                                          POTENTIAL
                                                                      REALIZABLE VALUE
                                                                      AT ASSUMED ANNUAL
                                                                       RATES OF STOCK
                          NUMBER OF                                         PRICE
                           SHARES    PERCENTAGE                       APPRECIATION FOR
                         UNDERLYING  OF OPTIONS  EXERCISE              OPTION TERM (4)
                           OPTIONS   GRANTED TO   PRICE    EXPIRATION -----------------
NAME                     GRANTED (1) EMPLOYEES  ($/SH) (2)  DATE (3)   5%($)   10%($)
- ----                     ----------- ---------- ---------- ---------- ------- ---------
<S>                      <C>         <C>        <C>        <C>        <C>     <C>
Joseph R. Tomkinson.....   95,000       48.7%     11.25    8/30/2005  672,131 1,703,312
William S. Ashmore......   50,000       25.7      11.25    8/30/2005  353,753   896,480
Richard J. Johnson......   25,000       12.8      11.25    8/30/2005  176,877   448,240
Mary C. Glass...........   25,000       12.8      11.25    8/30/2005  176,877   448,240
</TABLE>
- --------
(1) Such stock options vest 100% on the third anniversary of the date of
    grant.
(2) The exercise price for all options equals the fair market value of such
    shares at the date of grant as determined by the Committee.
(3) Such stock options expire seven years from the date of vesting or earlier
    upon termination of employment.
(4) Amounts reflect assumed rates of appreciation set forth in the
    Commission's executive compensation disclosure requirements.
 
  The Company has granted to Messrs. Snavely, Shugerman and Markel, officers
or Directors of the Manager, options to purchase 20,000, 20,000, and 15,000
shares of Common Stock, respectively, at a per share exercise price of $11.25,
which was equal to the fair market value of such shares at the date of grant
as determined by the Committee, with the same terms as the options set forth
above. On the effective date of the Company's Initial Public Offering, the
Company also granted to each of the Unaffiliated Directors options to purchase
15,000 shares of Common Stock at a per share exercise price equal to $13.00,
vesting 100% on the first anniversary of the date of grant.
   
  In addition, on September 30, 1996, the Company granted options to purchase
an aggregate of 115,500 shares of Common Stock at a per share exercise price
of $20.625, vesting one-third per year on the anniversary date of the option
grant; none of such options were granted to the Company's executive officers
or directors.     
 
401(K) PLAN
 
  On the effective date of the Initial Public Offering, the Company commenced
participation in the ICII contributory retirement plan ("401(k) Plan") for all
full time employees with at least six months of service, which is designed to
be tax deferred in accordance with the provisions of Section 401(k) of the
Code. The 401(k) Plan provides that each participant may contribute from 2% to
14% of his or her salary, and the Company will contribute to the participant's
plan account at the end of each plan year 50% of the first 4% of salary
contributed by a participant. Under the 401(k) Plan, employees may elect to
enroll on the first day of any month, provided that they have been employed
for at least six months.
 
  Subject to the rules for maintaining the tax status of the 401(k) Plan, an
additional Company contribution may be made at the discretion of the Company,
as determined by the Unaffiliated Directors. Should a discretionary
contribution be made, the contribution would first be allocated to those
employees deferring salaries in excess of 4%. The matching contribution would
be 50% of any deferral in excess of 4% up to a maximum deferral of 8%. Should
discretionary contribution funds remain following the allocation outlined
above, any remaining Company matching funds would be allocated as a 50% match
of employee contributions, on the first 4% of the employee's deferrals.
Company matching contributions will be made as of December 31st each year. No
contributions for any period presented herein are considered by management to
be material.
 
                                      67
<PAGE>
 
                        IMPERIAL CREDIT ADVISORS, INC.
 
THE MANAGER
 
  The Manager, ICAI, commenced operations as of January 23, 1995. Prior to
November 20, 1995, ICAI had no prior experience in managing or operating a
REIT. Each of the executive officers of the Manager has significant experience
in purchasing, financing, servicing and investing in mortgage loans and
mortgage securities; however, they have not previously managed a REIT. ICAI is
a wholly-owned subsidiary of ICII.
 
  The Company has selected an outside advisor and in particular an advisor
associated with ICII in order to efficiently and economically coordinate,
assist and manage the duties and responsibilities of the Company. The Company
believes that ICAI is more adequately suited than the Company to provide or
advise it with contract negotiation, market information, implementation of
cost controls, asset/liability modeling and management, servicing systems and
management information systems. In addition, the Company believes that ICAI is
better equipped than the Company to manage human resources and facilities
because ICAI and ICII, with which ICAI has entered into a submanagement
agreement to perform such administrative services for the Company as ICAI
deems necessary, has experienced teams in these areas. The Company believes
that ICAI, as an affiliate of ICII, is particularly appropriate to act as the
Company's advisor because ICAI provides continuity to those businesses
contributed pursuant to the Contribution Transaction and because of ICII's
familiarity with such businesses.
 
  The address of the Manager is 20371 Irvine Avenue, Santa Ana Heights,
California 92707, telephone (714) 474-8500.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The directors and executive officers of the Manager are as follows:
 
<TABLE>
<CAPTION>
      NAME                       POSITION
      ----                       --------
      <C>                        <S>
      H. Wayne Snavely*          Chairman of the Board
      Joseph R. Tomkinson*       Vice Chairman of the Board
      Thomas O. Markel, Jr.      President and Director
      Stephen Shugerman          Executive Vice President
      Glenn R. Wilson, Jr.       Director
</TABLE>
- --------
*Each of these persons also serve as directors or executive officers of the
 Company.
 
  For biographical information on Messrs. Snavely and Tomkinson, see "Imperial
Credit Mortgage Holdings, Inc.--Directors and Executive Officers."
 
  THOMAS O. MARKEL, JR. has been President and a Director of ICAI since March
1995. He has been President and Chief Executive Officer of HomeMac Corporation
since August 1993. Prior to August 1993, he had been Executive Vice President,
Chief Operating Officer and a Director of HomeMac since 1990. Mr. Markel is
also Chairman of the Board, Chief Executive Officer and a Director of
Homeowners' Mortgage Acceptance Corporation, the parent of HomeMac
Corporation, which is currently inactive. Since 1990, Mr. Markel has primarily
been involved in activities related to the analysis, financing and acquisition
of mortgage banking entities and related assets. From March 1986 to March
1990, Mr. Markel was a Senior Vice President of Lepercq Capital Partners,
responsible for capital market activities in the Western United States. Mr.
Markel is a member of the Mortgage Bankers Association Educational and Loan
Administration and Legislative Committees.
 
  STEPHEN SHUGERMAN has been Executive Vice President of ICAI since August
1995 and was a Director of ICAI from August 1995 through October 1995. Mr.
Shugerman has been a Director of ICII since December 1991 and has been
President of SPTL since June 1987. From June 1985 to May 1987, Mr. Shugerman
was President of ATI Thrift & Loan Association, a privately owned thrift and
loan association, and, from 1979 to 1985, he was
 
                                      68
<PAGE>
 
Senior Vice President of Imperial Thrift and Loan Association, a former
subsidiary of Imperial Bank. Mr. Shugerman has recently served as president of
the California Association of Thrift & Loan Companies.
 
  GLENN R. WILSON, JR. has been a Director of ICAI since October 1995. He has
been Chairman since May 1995, and President and Chief Executive Officer of
Knutson Mortgage Corporation since June 1988. From February 1987 to June 1988,
Mr. Wilson served as President and Chief Executive Officer of FirsTier
Mortgage Company. From May 1985 through February 1987, Mr. Wilson served as
President of the Government National Mortgage Association. Mr. Wilson has
served on the Board of Governors of the Mortgage Bankers Association of
America since March 1993.
 
MANAGEMENT AGREEMENT
 
  The Company has entered into a Management Agreement with the Manager
effective on November 20, 1995, for an initial term expiring on January 31,
1997. The Company currently intends to negotiate a renewal of the Management
Agreement containing more favorable terms than the current Management
Agreement. While there can be no assurance that such negotiations will be
successfully completed, management believes that such renewal will not be on
terms less favorable than the current Management Agreement. Successive
extensions, each for a period not to exceed one year, may be made by agreement
between the Company and the Manager. The Management Agreement may be
terminated by the Company or the Manager without cause at any time upon 60
days' written notice. Any such termination or failure to extend by the Company
without cause shall result in the payment of a termination or non-renewal fee
to the Manager determined by an independent appraisal. In addition, the
Company and the Manager will have the right to terminate the Management
Agreement upon the occurrence of certain specified events, including a breach
by the other party of any provision contained in the Management Agreement
which remains uncured for 30 days. The Company may renew or terminate the
Management Agreement by a majority vote of its Unaffiliated Directors or by a
vote of the holders of a majority of the outstanding shares of Common Stock.
The Manager may terminate the Management Agreement by a majority vote of its
Board of Directors.
 
  The terms of the Management Agreement, including the management fees, were
determined by arms-length discussion based upon what management of both ICAI
and IMH believe are comparable with other advisory relationships and have been
approved by the Board of Directors of ICAI and the Unaffiliated Directors of
IMH. IMH's Bylaws provide that the Unaffiliated Directors shall determine at
least annually that the compensation paid to the Manager is reasonable in
relation to the nature and quality of the services performed by the Manager.
 
  The Manager is at all times subject to the supervision of the Company's
Board of Directors and provides advisory services to the Company in accordance
with the terms of the Management Agreement. The Manager is involved in three
primary activities: (1) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; (2) asset management--primarily the analysis and oversight of the
acquisition, management and disposition of Company assets; and (3) operations
management--primarily the oversight of IMH's operating subsidiaries.
Specifically, the Manager performs such services and activities relating to
the assets and operations of the Company as may be appropriate, including:
 
    (1) serving as the Company's consultant with respect to formulation of
  investment criteria by its Board of Directors;
 
    (2) advising as to the issuance of commitments on behalf of the Company
  to purchase mortgage loans or purchasing mortgage loans and Agency
  Certificates meeting the investment criteria set from time to time by the
  Company's Board of Directors;
 
    (3) advising the Company in connection with and assisting in its Long-
  Term Investment Operations;
 
    (4) furnishing reports and statistical and economic research to the
  Company regarding the Company's activities and the services performed for
  the Company by the Manager;
 
    (5) monitoring and providing to the Board of Directors on an on-going
  basis price information and other data, obtained from certain nationally-
  recognized dealers who maintain markets in mortgage loans
 
                                      69
<PAGE>
 
  identified by the Board of Directors from time to time, and providing data
  and advice to the Board of Directors in connection with the identification
  of such dealers;
 
    (6) providing the executive and administrative personnel, office space
  and services required in rendering services to the Company;
 
    (7) overseeing the day-to-day operations of IMH and supervising the
  performance of such other administrative functions necessary in the
  management of IMH as directed by the Board of Directors of IMH;
 
    (8) advising on the negotiation of agreements on behalf of the Company
  with banking institutions and other lenders to provide for the short-term
  borrowing of funds by the Company;
 
    (9) communicating on behalf of the Company with the holders of the equity
  and debt securities of the Company as required to satisfy the reporting and
  other requirements of any governmental bodies or agencies and to maintain
  effective relations with such holders;
 
    (10) subject to an agreement executed by the Company, advising as to the
  designation of a servicer for those loans sold by ICIFC whereby ICIFC
  elected not to service such loans;
 
    (11) counseling the Company in connection with policy decisions to be
  made by its Board of Directors; and
 
    (12) upon request by and in accordance with the direction of the Board of
  Directors of the Company, investing or reinvesting any money of the
  Company.
 
  The Manager has entered into a submanagement agreement with ICII to perform
such administrative services for the Company as the Manager deems necessary.
The Manager may enter into additional contracts with other parties, including
ICII, to provide any such services for the Manager, which third party shall be
approved by the Company's Board of Directors.
 
  As of September 30, 1996, ICAI had a total of seven officers and directors
who participate in the oversight of the Company's operations.
 
 MANAGEMENT FEES
 
  The Manager is currently entitled to a per annum base management fee payable
monthly in arrears of an amount equal to (1) 3/8 of 1% of Gross Mortgage
Assets of IMH comprised of other than Agency Certificates, conforming mortgage
loans or mortgage-backed securities secured by or representing interests in
conforming mortgage loans, plus (2) 1/8 of 1% of the remainder of Gross
Mortgage Assets of IMH plus (3) 1/5 of 1% of the average daily asset balance
of the outstanding amounts under IWLG's warehouse lending facilities. A base
management fee of $1.4 million (unaudited) and $37,888 was accrued for the
nine months ended September 30, 1996 and for the year ended December 31, 1995,
respectively.
 
  As incentive compensation, the Manager is currently entitled to receive for
each fiscal quarter, an amount equal to 25% of the net income of the Company,
before deduction of such incentive compensation, in excess of the amount that
would produce an annualized Return on Equity equal to the daily average Ten
Year U.S. Treasury Rate plus 2%. The term "Return on Equity" is calculated for
any quarter by dividing the Company's Net Income for the quarter by its
Average Net Worth for the quarter. For such calculations, the "Net Income" of
the Company means the income of the Company determined in accordance with GAAP
before the Manager's incentive compensation, the deduction for dividends paid
and any net operating loss deductions arising from losses in prior periods. A
deduction for all of the Company's interest expenses for borrowed money is
also taken in calculating Net Income. "Average Net Worth" for any period means
the arithmetic average of the sum of the gross proceeds from any offering of
its equity securities by the Company, before deducting any underwriting
discounts and commissions and other expenses and costs relating to the
offering, plus the Company's retained earnings (without taking into account
any losses incurred in prior periods) computed by taking the daily average of
such values during such period. The definition "Return on Equity" is only for
purposes of calculating the
 
                                      70
<PAGE>
 
incentive compensation payable, and is not related to the actual distributions
received by stockholders. The 25% Incentive Payment to the Manager will be
calculated quarterly in arrears before any income distributions are made to
stockholders for the corresponding period. For the nine months ended September
30, 1996 and for the year ended December 31, 1995, the Manager earned $749,000
and zero, respectively, for the Manager's Incentive Payment. Pursuant to the
Management Agreement, the Company reserves up to 1/5 of the Company's 25%
Incentive Payment for distribution as bonuses to its employees in amounts to
be determined by the Company's Board of Directors. Such payment is made in
lieu of payment of a like amount to the Manager under the Management
Agreement. For the nine months ended September 30, 1996, the Company accrued
$187,000 pursuant to this provision of the Management Agreement.
 
  The Manager's base and incentive fees are calculated by the Manager within
60 days after the end of each calendar quarter, with the exception of the
fourth quarter for which compensation will be computed within 30 days, and
such calculation shall be promptly delivered to the Company. The Company is
obligated to pay the base fee within 90 days after the end of each calendar
quarter.
 
 EXPENSES
 
  Pursuant to the Management Agreement, the Company also pays all operating
expenses except those specifically required to be borne by the Manager under
the Management Agreement. The operating expenses generally required to be
borne by the Manager include the compensation and other employment costs of
the Manager's officers in their capacities as such and the cost of office
space and out-of-pocket costs, equipment and other personnel required for
oversight of the Company's operations. The expenses paid by the Company
include issuance and transaction costs incident to the acquisition,
disposition and financing of investments, regular legal and auditing fees and
expenses of the Company, the fees and expenses of the Company's Directors,
premiums for directors' and officers' liability insurance, premiums for
fidelity and errors and omissions insurance, servicing and sub-servicing
expenses, the costs of printing and mailing proxies and reports to
stockholders, and the fees and expenses of the Company's custodian and
transfer agent, if any. Reimbursements of expenses incurred by the Manager
which are the responsibility of the Company are made monthly. For the nine
months ended September 30, 1996 and for the year ended December 31, 1995,
there were no monies paid to the Manager as reimbursement of expenses.
 
 STOCK OPTION PLAN
 
  The Company has adopted the Stock Option Plan and the Manager and the
directors, officers and employees of the Manager have been granted certain
options or rights under the Stock Option Plan, and may in the future be
granted additional options or rights under the Stock Option Plan. See
"Imperial Credit Mortgage Holdings, Inc.--Stock Options."
 
 LIMITS OF RESPONSIBILITY
 
  Pursuant to the Management Agreement, the Manager does not assume any
responsibility other than to render the services called for thereunder and is
not responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager,
its directors, officers, shareholders and employees are not liable to the
Company, any mortgage security issuer, any subsidiary of the Company, the
Unaffiliated Directors, the Company's stockholders or any subsidiary's
shareholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts or omissions constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. The Manager is a recently formed
company and does not have significant assets. Consequently, there can be no
assurance that the Company would be able to recover any damages for claims it
may have against the Manager. The Company has agreed to indemnify the Manager,
and its directors, officers, shareholders and employees with respect to all
expenses, losses, damages, liabilities, demands, charges and claims arising
from any acts or omissions of the Manager made in good faith in the
performance of its duties under the Management Agreement. See "Risk Factors--
Relationship with ICII and its Affiliates; Conflicts of Interest."
 
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<PAGE>
 
                         RELATIONSHIPS WITH AFFILIATES
   
  ICII is a publicly traded company whose shares of common stock are listed on
the Nasdaq National Market. ICAI, a wholly-owned subsidiary of ICII, is the
Manager and provides advisory services to IMH in accordance with the terms of
the Management Agreement. As previously described, IMH utilizes the mortgage
banking experience, management expertise and resources of ICII and ICAI in
conducting its business. At October 15, 1996, ICII and SPTL, its wholly-owned
subsidiary, owned in the aggregate 424,538 shares of the Common Stock of IMH.
In addition, a number of Directors and officers of IMH and ICIFC also serve as
Directors and/or officers of ICII and ICAI. See "Imperial Credit Mortgage
Holdings, Inc." and "Imperial Credit Advisors, Inc." IMH currently utilizes
ICII as a resource for technology, human resources services and management
information services. However, the amount of services provided by ICII are
expected to decrease as IMH takes on certain of these responsibilities. As of
September 30, 1996, ICII owned all of the voting common stock and a 1%
economic interest in ICIFC, and IMH owned all of the non-voting preferred
stock of ICIFC, representing 99% of the economic interest in ICIFC. ICII has
the power to elect all of the directors of ICIFC and the ability to control
the outcome of all matters for which the consent of the holders of the common
stock of ICIFC is required.     
   
  With a view toward protecting the interests of IMH's stockholders, the
Charter and the Bylaws of IMH provide that a majority of the Board of
Directors (and at least a majority of each committee of the Board of
Directors) must not be "Affiliates" of ICAI, as that term is defined in the
Bylaws, and that the investment policies of IMH must be reviewed annually by
the Unaffiliated Directors. Such policies and restrictions thereon may be
established from time to time by the Board of Directors, including a majority
of the Unaffiliated Directors. In addition, any transaction between IMH and
any Affiliated Person requires the affirmative vote of a majority of the
Unaffiliated Directors. Moreover, approval, renewal or termination of the
Management Agreement requires the affirmative vote of a majority of the
Unaffiliated Directors. The Management Agreement may be terminated by either
IMH or the Manager upon 60 days' notice. Any such termination or failure to
extend by IMH without cause shall result in the payment of a termination or
non-renewal fee to the Manager determined by an independent appraisal.     
   
  Certain activities of ICII and its affiliates may adversely affect IMH's
operations. For a further description of such activities and the possible
effects to IMH therefrom, including the terms and conditions of the Non-
Compete Agreement and the Right of First Refusal Agreement, see "Certain
Transactions--The Contribution Transaction" and "Risk Factors--Relationship
with ICII and its Affiliates; Conflicts of Interest."     
 
                             CERTAIN TRANSACTIONS
 
THE CONTRIBUTION TRANSACTION
 
  On November 20, 1995, ICII contributed to ICIFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million at November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the outstanding non-voting
preferred stock of ICIFC. Simultaneously, on November 20, 1995, in exchange
for 500,000 shares of Common Stock, ICII (1) contributed to IMH all of the
outstanding non-voting preferred stock of ICIFC, which represents 99% of the
economic interest in ICIFC, (2) caused SPTL to contribute to IMH certain of
the operating assets and certain customer lists of SPTL's warehouse lending
division, and (3) executed the Non-Compete Agreement and the Right of First
Refusal Agreement, each having a term of two years from November 20, 1995. Of
the 500,000 shares issued pursuant to the Contribution Transaction, 450,000
shares were issued to ICII and 50,000 shares were issued to SPTL. All of the
outstanding shares of common stock of ICIFC were retained by ICII. Lastly, IMH
contributed all of the aforementioned operating assets of SPTL's warehouse
lending operations contributed to it by SPTL to IWLG in exchange for shares
representing 100% of the common stock of IWLG thereby forming it as a wholly
owned subsidiary. At November 20, 1995, the net tangible book value of the
assets contributed pursuant to the Contribution Transaction was $525,000. ICII
and SPTL retained
 
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<PAGE>
 
all other assets and liabilities related to the contributed operations which
at November 20, 1995 consisted mostly of $11.7 million of MSRs, $22.4 million
of finance receivables and $26.6 million in advances made by ICII and SPTL to
fund mortgage conduit loan acquisitions and to fund finance receivables,
respectively.
 
  Pursuant to the Non-Compete Agreement, ICII, except as set forth below, and
any 25% entity may not compete with the Warehouse Lending Operations and may
not establish a network of third party correspondent loan originators or
another end-investor in non-conforming mortgage loans. ICII has also agreed
(1) that, in addition to any other remedy that may be available to the
Company, it will sell all of the outstanding shares of common stock of ICIFC
retained by ICII pursuant to the Contribution Transaction to any third party
reasonably acceptable to the Company in the event that ICII or a 25% entity
establishes a network of third party correspondent loan originators during the
term of the Non-Compete Agreement and (2) that any sale by ICIFC of shares of
its capital stock or sale or transfer by ICII of any shares of the common
stock of ICIFC which ICII owns may only be made to a party reasonably
acceptable to the Company. Pursuant to the Non-Compete Agreement, SPTL may
continue to act as an end-investor in non-conforming mortgage loans and SPFC,
a subsidiary of ICII, may continue its business, which is primarily to act as
a wholesale originator and bulk purchaser of non-conforming mortgage loans.
Pursuant to the Right of First Refusal Agreement, ICII has granted ICIFC a
right of first refusal to purchase all non-conforming mortgage loans that ICII
or any 25% entity originates or acquires and subsequently offers for sale, and
ICIFC has granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all conforming mortgage loans that ICIFC acquires and
subsequently offers for sale.
 
ARRANGEMENTS AND TRANSACTIONS WITH ICII
 
  The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationships. These agreements were developed in the
context of a parent/subsidiary relationship and therefore were not the result
of arms length negotiations between independent parties. It is the intention
of the Company and ICII that such agreements and the transactions provided for
therein, taken as a whole, are fair to both parties, while continuing certain
mutually beneficial arrangements. However, there can be no assurance that each
of such agreements, or the transactions provided for therein, have been
effected on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
 
  The Company has entered into a sublease with ICII to lease a portion of its
facilities as the Company's executive offices and administrative facilities.
The Company believes that the terms of the sublease are at least as favorable
as could have been obtained from an unaffiliated third party. For the nine
months ended September 30, 1996 and for the Interim Period, $116,100 and
$12,900, respectively, were paid by the Company to ICII under the sublease.
See "Business--Facilities."
 
  Additional or modified arrangements and transactions may be entered into by
the Company, ICII, and their respective subsidiaries, in the future. Any such
future arrangements and transactions will be determined through negotiation
between the Company and ICII, and it is possible that conflicts of interest
will be involved. The Unaffiliated Directors, consisting of directors
independent of the Company, any manager of the Company (including ICAI) and
ICII and its Affiliated Persons, must independently approve all transactions
by and between the Company and ICII.
 
  The following is a summary of certain arrangements and transactions between
the Company and ICII.
 
 TAX AGREEMENT
 
  IMH has entered into an agreement (the "Tax Agreement") effective November
20, 1995 with ICII for the purposes of (1) providing for filing certain tax
returns, (2) allocating certain tax liability and (3) establishing procedures
for certain audits and contests of tax liability.
 
                                      73
<PAGE>
 
  Under the Tax Agreement, ICII has agreed to indemnify and hold IMH harmless
from any tax liability attributable to periods ending on or before November
20, 1995, in excess of such taxes as IMH has already paid or provided for. For
periods ending after November 20, 1995, IMH will pay its tax liability
directly to the appropriate taxing authorities. To the extent (1) there are
audit adjustments that result in a tax detriment to IMH or (2) IMH incurs
losses that are carried back to an earlier year and any such adjustment
described in (1) or loss described in (2) results in a tax benefit to ICII or
its affiliates, then ICII will pay to IMH an amount equal to the tax benefit
as that benefit is realized. ICII will also agree to indemnify IMH for any
liability associated with the contribution of the preferred stock of ICIFC and
certain operational assets of SPTL's warehouse lending division or any
liability arising out of the filing of a federal consolidated return by ICII
or any return filed with any state or local counterpart liability. To the
extent there are audit adjustments that result in any tax detriment to ICII or
any of its affiliates with respect to any period ending on or before November
20, 1995, as a result thereof, IMH for any taxable period after November 20,
1995 realizes a tax benefit, then IMH shall pay to ICII the amount of such
benefit at such time or times as IMH actually realizes such benefit.
 
  ICII generally controls audits and administrative and judicial proceedings
with respect to periods ending on or before November 20, 1995, although ICII
cannot compromise or settle any issue that increases IMH's liability without
first obtaining the consent of IMH. IMH generally controls all other audits
and administrative and judicial proceedings.
 
 SERVICES AGREEMENT
 
  Prior to November 20, 1995, the predecessors of ICIFC and IWLG were
historically allocated expenses of various administrative services provided by
ICII. The costs of such services were not directly attributable to a specific
division or subsidiary and primarily included general corporate overhead, such
as accounting and cash management services, human resources and other
administrative functions. These expenses were calculated as a pro rata share
of certain administrative costs based on relative assets and liabilities of
the division or subsidiary, which management believed was a reasonable method
of allocation. The allocations of expenses for the period January 1, 1995 to
November 19, 1995, and for the years ended December 31, 1994 and 1993 were
$269,000, $517,000, and $459,000, respectively, for ICIFC and IWLG combined.
 
  The Company and ICII have entered into a services agreement effective as of
November 20, 1995 (the "Services Agreement") under which ICII provides various
services to the Company, including data processing, human resource
administration, general ledger accounts, check processing and payment of
accounts payable. ICII charges fees for each of the services which it provides
under the Services Agreement based upon usage. The Services Agreement has an
initial term that ends on December 31, 1996 and is renewable annually
thereafter. The Company may terminate the Services Agreement, in whole or in
part, upon one month's written notice. As part of the services to be provided
under the Services Agreement, ICII provides the Company with insurance
coverage and self-insurance programs, including health insurance. The charge
to the Company for coverage will be based upon a pro rata portion of the costs
to ICII for the various policies. Management believes that the terms of the
Services Agreement are as favorable to the Company as could be obtained from
independent third parties. For the nine months ended September 30, 1996 and
for the Interim Period, total expenses allocated to the Company related to
these services were $358,000 and $29,000, respectively.
 
LOAN PURCHASE AND ADMINISTRATIVE SERVICES AGREEMENT
 
  To facilitate the acquisition of mortgage loans and to monitor loans not
serviced by ICIFC, the Company entered into an agreement (the "Loan Purchase
and Administrative Services Agreement") with ICIFC effective as of November
20, 1995.
 
  To assure a source of mortgage loans for the Long-Term Investment
Operations, ICIFC granted the Company an option to purchase all non-conforming
mortgage loans meeting the Company's investment criteria and policies.
Commitments to acquire loans will obligate the Company to purchase such loans
from ICIFC upon the closing and funding of the loans, pursuant to the terms
and conditions specified in the commitment.
 
                                      74
<PAGE>
 
Commitment fees to be paid by ICIFC in connection with the loans purchased by
the Company shall be determined based on criteria established from time to
time by ICIFC's Board of Directors, including a majority of the Unaffiliated
Directors, at amounts which, in its judgment, are comparable to commitment
fees then generally paid by other mortgage loan originators for loans of
similar size and credit characteristics to those being acquired.
 
  To provide additional protection for the Company's investments, ICIFC
monitors and administers the servicing of the Company's mortgage loans which
it is not then servicing. Such monitoring and administrative services include,
but are not limited to, the following activities: serving as the Company's
consultant with respect to the servicing of loans; collection of information
and submission of reports pertaining to the mortgage loans and to monies
remitted to ICIFC or the Company by servicers; periodic review and evaluation
of the performance of each servicer to determine its compliance with the terms
and conditions of each servicing agreement and, if deemed appropriate,
recommending to the Company the termination of such servicing agreement;
acting as a liaison between servicers and the Company and working with
servicers to the extent necessary to improve their servicing performance;
review of and recommendations as to fire losses, easement problems and
condemnation, delinquency and foreclosure procedures with regard to the
mortgage loans; review of servicers' delinquency, foreclosure and other
reports on mortgage loans; supervising claims filed under any mortgage
insurance policies; enforcing the obligation of any servicer to repurchase
mortgage loans from the Company; and coordinating and overseeing the
performance of the servicing of the mortgage loans by the servicers to ensure
that the mortgage loans meet the Company's eligibility requirements.
 
  Under the terms of the Loan Purchase and Administrative Services Agreement,
ICIFC advances and remits to the Company any payment of principal and interest
and any principal prepayments which another servicer fails to advance or remit
on a timely basis, excluding certain nonrecoverable advances. In addition, if
a servicer defaults in the performance of its servicing duties or, with the
consent of the Company, assigns such duties to the Company, ICIFC assumes the
servicing function of that servicer and all responsibilities set forth in the
related servicing agreement, for the same fee the servicer was receiving at
the time of such default.
 
  Pursuant to the terms of the Loan Purchase and Administrative Services
Agreement, ICIFC receives a monthly administrative services fee equal to 0.02%
of the outstanding principal balance, as of the last day of the month for
which the fee is paid, of the mortgage loans monitored and administered under
the agreement on which principal and interest remittances for such month have
been made in full to the Company. Additionally, ICIFC is paid for services
rendered under any master servicing agreement which it may enter into with the
Company or any subsidiary of the Company that has issued CMOs or other
mortgage collateralized debt, an amount equal to 0.02% of the average CMO
assets for each fiscal quarter. For the nine months ended September 30, 1996
and the year ended December 31, 1995, no fees associated with the Loan
Purchase and Administrative Service Agreement were paid or earned.
 
  The Loan Purchase and Administrative Services Agreement remains in force
until November 20, 1996 and thereafter it will be automatically renewed unless
written notice is delivered by either the Company or ICIFC 30 days prior to
the end of the term or any renewal term of the agreement.
 
  The Company may terminate the Loan Purchase and Administrative Services
Agreement upon 30 days' notice following the happening of one or more events
specified in the agreement. Such events relate generally to ICIFC's proper and
timely performance of its duties and obligations under the agreement. In
addition, either party may terminate the Loan Purchase and Administrative
Services Agreement without cause upon 30 days' notice.
 
OTHER TRANSACTIONS
 
 MANAGEMENT AND SUB-SERVICING AGREEMENTS
 
  ICAI, a wholly-owned subsidiary of ICII, oversees the day-to-day operations
of the Company, subject to the supervision of the Company's Board of
Directors, pursuant to the Management Agreement which became
 
                                      75
<PAGE>
 
effective on November 20, 1995. For a description of the terms of the
Management Agreement, see "Imperial Credit Advisors, Inc.--Management
Agreement."
 
  ICIFC acts as a servicer of mortgage loans acquired on a "servicing-
released" basis by the Company in its Long-Term Investment Operations pursuant
to the terms of a Servicing Agreement which became effective on November 20,
1995. For a general description of the terms of such a Servicing Agreement,
see "Business-- Servicing and Master Servicing." ICIFC subcontracts all of its
servicing obligations under such loans to independent third parties pursuant
to sub-servicing agreements.
 
 BULK MORTGAGE LOAN PURCHASES
 
  During the nine months ended September 30, 1996, ICIFC purchased from ICII
bulk mortgage loans packages of 30-year fully amortizing six-month adjustable
LIBOR and 30- and 15-year fixed rate first and second trust deed mortgages
having a principal balance of $215.2 million with net premiums paid of $3.8
million. Servicing rights on all mortgage loans were released to ICIFC.
 
  On December 5, 1995 and December 13, 1995, ICIFC purchased from ICII two
bulk mortgage loan packages of 30-year fully amortizing six-month adjustable
LIBOR and one-year adjustable Treasury Bill rate loans and 30- and 15-year
fixed rate second trust deed mortgages with servicing rights on all mortgage
loans released to ICIFC. The principal balances of the mortgages at the time
of purchase was $172.9 million, with net premiums paid of $3.7 million.
 
  On December 29, 1995, ICIFC purchased from SPTL two bulk mortgage loan
packages of 30-year fully amortizing six-month adjustable LIBOR, one-year
adjustable Treasury Bill rate loans and 30- and 15-year fixed rate fully
amortizing mortgage loans. The principal balances of the loans in the
servicing released and servicing retained bulk packages, respectively, at the
time of purchase was $328.5 million with net premiums paid of $3.5 million.
 
  During the nine months ended September 30, 1996, ICIFC purchased from Walsh
Securities, Inc. bulk mortgage loan packages of primarily 30-year fully
amortizing non-conforming six-month adjustable LIBOR having a principal
balance of $16,725,254 with net premiums paid of $877,484. James Walsh, a
Director of the Company, is an Executive Vice President of Walsh Securities,
Inc.
 
 PURCHASE OF MORTGAGE-BACKED SECURITIES
 
  On December 29, 1995, the Company purchased DLJ Mortgage Acceptance Corp.
Pass-Through Certificates Series 1995-4, Class B-1 and Class B-2 from SPTL.
These certificates are backed primarily by a pool of certain conventional,
11th District Cost of Funds adjustable rate, one-to-four family, first lien
mortgage loans, with terms to maturity of not more than 30 years. The mortgage
loans underlying the certificates were originated or acquired by ICII. All of
the mortgage loans are serviced by ICII in its capacity as master servicer.
The Company purchased Class B-1 certificates having a current principal
balance of $4.8 million and Class B-2 certificates having a current principal
balance of $2.3 million, at a discount of $1.0 million and $0.7 million,
respectively. The Class B-1 certificates are "B" rated and the Class B-2 are
"BB" rated. There was no gain or loss recorded by either party as a result of
this transaction.
 
 PURCHASE OF OTHER INVESTMENTS
 
  On December 29, 1995, IMH purchased a subordinated interest in a lease
receivable securitization from IBC, a wholly-owned subsidiary of ICII. The
lease receivables underlying the security were originated by IBC. IMH
purchased the subordinated lease receivables at the present value of estimated
cash flows based on a discount rate of 12% amounting to a purchase price of
$8.4 million. As a result of this transaction, IBC recorded a gain of
$164,000. The discount rate used in determining the purchase price of the
asset was confirmed by an independent third party. On May 31, 1996, IMH sold
the security back to IBC at no gain or loss.
 
 
                                      76
<PAGE>
 
  On March 28, 1996, the Company purchased from ICII the beneficial interest
in the Class A Trust Certificate for the Franchise Loan Receivable Trust 1995-
B. The trust is securitized by loans originated by Franchise Mortgage
Acceptance Corporation LLC, a subsidiary of ICII. The purchase price was $2.8
million based upon a discount rate of 16%.
 
  On March 8, 1996, the Company purchased from ICII $5.0 million of its Senior
Note obligations at a price of $4.5 million plus accrued interest. The
obligations are currently unregistered debt of ICII and cannot be traded or
sold by the Company. ICII has agreed to register the notes under the
Securities Act so the Company has the ability to sell them in the future.
 
  The Company may, from time to time, enter into additional transactions in
the ordinary course of business with institutions with which certain of the
Unaffiliated Directors are employed.
 
 RELATED PARTY LOAN
   
  In September 1996, ICIFC issued a $1.25 million secured residential first
mortgage loan to the Chairman of IMH. Terms of the loan include monthly
interest-only payments at 8% per annum, with the principal balance due in full
on October 1, 1997.     
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Upon completion of this Offering, the Company will have outstanding
9,267,500 shares of Common Stock, of which 500,000 shares will be "restricted
securities" as that term is defined in Rule 144, which will not become
eligible for sale under Rule 144 until November 20, 1997, at the earliest. As
described below, Rule 144 permits resales of restricted securities subject to
certain restrictions. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who beneficially owned shares
for at least two years, including any person who may be deemed an "affiliate"
of the Company, would be entitled to sell within any three-month period a
number of such shares that does not exceed the greater of 1% of the shares of
the Company's Common Stock then outstanding or the average weekly trading
volume in the Company's Common Stock during the four calendar weeks preceding
the date on which notice of the sale is filed with the Commission. A person
who is not deemed to have been an "affiliate" of the Company at any time
during the three months immediately preceding a sale and who has beneficially
owned shares for at least three years would be entitled to sell such shares
under Rule 144 without regard to the volume limitation described above.
 
  The Company, ICII, SPTL and the Manager have agreed with the Underwriters
that, for a period of 120 days following the commencement of this Offering,
they will not sell, contract to sell or otherwise dispose of any of shares of
Common Stock or rights to acquire such shares (other than pursuant to employee
plans) without the prior written consent of PaineWebber Incorporated.
   
  Additionally, there are outstanding stock options for 250,000 shares of
Common Stock which have been granted at a per share exercise price of $11.25
per share, to executive officers and Directors of the Company or of the
Manager, none of which, except in the event of a change of control of the
Company, is exercisable until November 1998; stock options for an additional
45,000 shares of Common Stock have been granted to Unaffiliated Directors of
the Company at a per share exercise price of $13.00, all of which become
exercisable on November 20, 1996; stock options on an additional 115,500
shares of Common Stock have been granted to officers and employees of ICIFC at
a per share exercise price of $20.625, none of which, except in the event of a
change of control of the Company, is exercisable until September 1997; and an
additional 389,500 shares of Common Stock are reserved for future issuance
pursuant to the Company's Stock Option Plan. The Company intends to register
under the Securities Act shares reserved for issuance pursuant to the Stock
Option Plan.     
 
 
                                      77
<PAGE>
 
                            PRINCIPAL STOCKHOLDERS
 
  The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of October
15, 1996, and as adjusted to reflect the sale of 2,500,000 shares by the
Company by (1) each person known to the Company to beneficially own more than
five percent of the Company's Common Stock, (2) each Director, (3) the
Company's executive officers, and (4) all Directors and executive officers as
a group. Unless otherwise indicated in the footnotes to the table, the
beneficial owners named have, to the knowledge of the Company, sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
 
<TABLE>
<CAPTION>
                                                           PERCENTAGE OF
                                                        SHARES BENEFICIALLY
                                                               OWNED
                                                        -----------------------
                                           NUMBER OF
                                             SHARES
                                          BENEFICIALLY   BEFORE         AFTER
   NAME OF BENEFICIAL OWNER                  OWNED      OFFERING      OFFERING
   ------------------------               ------------  ---------     ---------
   <S>                                    <C>           <C>           <C>
   Imperial Credit Industries, Inc. (1).    374,538             5.5%          4.0%
   Southern Pacific Thrift and Loan As-
    sociation (2).......................     50,000               *             *
   H. Wayne Snavely.....................        --               --            --
   Joseph R. Tomkinson..................     27,613               *             *
   William S. Ashmore...................      7,787               *             *
   Richard J. Johnson...................     10,676               *             *
   Mary C. Glass........................        --               --            --
   James Walsh..........................     15,000(3)            *             *
   Frank P. Fillips.....................     15,000(3)            *             *
   Stephan R. Peers.....................     15,000(3)            *             *
   All directors and executive officers
    as a group (8 persons)..............     91,076(4)          1.3%            *
</TABLE>
- --------
* less than 1%
(1) ICII's address is 23550 Hawthorne Boulevard, Building One, Suite 110,
    Torrance, California 90505. ICII disclaims beneficial ownership of all
    50,000 shares of the Company held by SPTL.
 
(2) SPTL's address is 12300 Wilshire Boulevard, Los Angeles, California 90025.
    SPTL is a wholly-owned subsidiary of ICII.
 
(3) Represents stock options exercisable within 60 days of October 15, 1996.
 
(4) Includes 45,000 stock options exercisable within 60 days of October 15,
    1996.
 
                         DESCRIPTION OF CAPITAL STOCK
 
GENERAL
   
  The authorized stock of IMH consists of 50,000,000 shares of Common Stock,
$0.01 par value per share, and 10,000,000 shares of Preferred Stock, $0.01 par
value per share. It is expected that meetings of the stockholders of IMH will
be held annually. Special meetings of the stockholders may be called by the
President, Chief Executive Officer, a majority of the entire Board of
Directors or a majority of the Unaffiliated Directors and must be called upon
the written request of holders of shares entitled to cast at least 25% of all
the votes entitled to be cast at the meeting. The Charter reserves to IMH the
right to amend any provision thereof in the manner prescribed by Maryland law
upon the affirmative vote of stockholders entitled to cast at least a majority
of all the votes entitled to be cast on the matter.     
 
 
                                      78
<PAGE>
 
COMMON STOCK
   
  Each share of Common Stock is entitled to participate equally in dividends
when and as authorized by the Board of Directors and in the distribution of
assets of IMH upon liquidation. Each share of Common Stock is entitled to one
vote, subject to the provisions of the Charter regarding restrictions on
transfer of stock, and will be fully paid and nonassessable by IMH upon
issuance. Shares of Common Stock have no preference, conversion, exchange,
preemptive or cumulative voting rights. The authorized stock of IMH may be
increased and altered from time to time in the manner prescribed by Maryland
law upon the affirmative vote of stockholders entitled to cast at least a
majority of all the votes entitled to be cast on the matter. The Charter
authorizes the Board of Directors to reclassify any unissued shares of its
Common Stock in one or more classes or series of stock.     
 
PREFERRED STOCK
   
  The Charter authorizes the Board of Directors to issue shares of Preferred
Stock and to classify or reclassify any unissued shares of Preferred Stock
into one or more classes or series. The Preferred Stock may be issued from
time to time with such designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption as shall be
determined by the Board of Directors subject to the provisions of the Charter
regarding restrictions on transfer of stock. Preferred Stock is available for
possible future financing of, or acquisitions by, IMH and for general
corporate purposes without further stockholder authorization. Thus, the Board
could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
change in control of IMH by means of a merger, tender offer, proxy contest or
otherwise. The Preferred Stock, if issued, may have a preference on dividend
payments which could reduce the assets available to IMH to make distributions
to the common stockholders. As of the date hereof, no shares of Preferred
Stock have been issued.     
 
REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER
 
  For IMH to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of stock may be owned, actually or constructively, by
or for five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year
for which an election to be treated as a REIT has been made). In addition, a
REIT's stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (other than the first year for which an election to be
treated as a REIT has been made).
   
  Because IMH expects to continue to qualify as a REIT, the Charter contains
restrictions on the transfer of Common Stock which are intended to assist IMH
in complying with these requirements. The Ownership Limit set forth in the
Charter prohibits any person, subject to certain specified exceptions
discussed below, from owning, actually or constructively, shares of Common
Stock in excess of 9.5% (in value or in number, whichever is more restrictive)
of the outstanding shares of Common Stock. The constructive ownership rules
are complex, and may cause shares of Common Stock owned actually or
constructively by a group of related individuals and/or entities to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 9.5% of the shares of Common Stock (or the acquisition of an
interest in an entity that owns, actually or constructively, shares of Common
Stock) by an individual or entity, could nevertheless cause that individual or
entity, or another individual or entity, to own constructively in excess of
9.5% of the outstanding shares of Common Stock and thus violate the Ownership
Limit, or such other limit as provided in the Charter or as otherwise
permitted by the Board of Directors. The Board of Directors may, but in no
event will be required to, exempt a person from the Ownership Limit if it
determines that such person's ownership of shares of Common Stock will not
jeopardize IMH's status as a REIT. As a condition of such waiver, the Board of
Directors may require a ruling from the Internal Revenue Service or opinions
of counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to IMH's status as a REIT.     
 
 
                                      79
<PAGE>
 
  IMH's Charter further prohibits (a) any person from actually or
constructively owning shares of Common Stock that would result in IMH being
"closely held" under Section 856(h) of the Code or otherwise cause IMH to fail
to qualify as a REIT, and (b) any person from transferring shares of Common
Stock if such transfer would result in shares of Common Stock being owned by
fewer than 100 persons. Any person who acquires or attempts or intends to
acquire actual or constructive ownership of shares of stock of IMH that will
or may violate any of the foregoing restrictions on transferability and
ownership is required to give written notice immediately to IMH and provide
IMH with such other information as it may request in order to determine the
effect of such transfer on its status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interest of IMH to attempt to
qualify, or to continue to qualify, as a REIT. The Board of Directors may from
time to time increase or, subject to certain limitations, decrease the
Ownership Limit.
 
  Pursuant to the Charter, if any purported transfer of Common Stock or any
other event would otherwise result in any person owning shares of Common Stock
in excess of the Ownership Limit or in IMH being "closely held" as described
above or otherwise failing to qualify as a REIT, then that number of shares of
Common Stock the actual or constructive ownership of which otherwise would
cause such person to violate such restrictions (rounded to the nearest whole
share) will be automatically transferred to a trustee (the "Trustee") as
trustee of a trust (the "Trust") for the exclusive benefit of one or more
charitable beneficiaries (the "Charitable Beneficiary"), and the intended
transferee will not acquire any rights in such shares. Shares held by the
Trustee will constitute issued and outstanding shares of Common Stock. The
intended transferee will not benefit economically from ownership of any shares
held in the Trust, will have no rights to dividends and will not possess any
rights to vote or other rights attributable to the shares held in the Trust.
The Trustee will have all voting rights and rights to dividends or other
distributions with respect to shares held in the Trust, which rights will be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by IMH that shares
of Common Stock have been transferred to the Trustee will be paid with respect
to such shares to the Trustee upon demand and any dividend or other
distribution authorized but unpaid will be paid when due to the Trustee. Any
dividends or distributions so paid over to the Trustee will be held in trust
for the Charitable Beneficiary. Subject to Maryland law, effective as of the
date that such shares have been transferred to the Trustee, the Trustee will
have the authority (at the Trustee's sole discretion) (i) to rescind as void
any vote cast by an intended transferee prior to the discovery by IMH that
such shares have been transferred to the Trustee and (ii) to recast such vote
in accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary.
   
  Within 20 days of receiving notice from IMH that shares of Common Stock have
been transferred to the Trust, the Trustee will sell the shares held in the
Trust to a person designated by the Trustee whose ownership of the shares will
not violate the ownership restrictions set forth in the Charter. Upon such
sale, the interest of the Charitable Beneficiary in the shares sold will
terminate and the Trustee will distribute the net proceeds of the sale to the
intended transferee and to the Charitable Beneficiary as follows: the intended
transferee will receive the lesser of (1) the price paid by the intended
transferee for the shares or, if the intended transferee did not give value
for the shares in connection with the event causing the shares to be held in
the Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price (as defined below) of the shares on the day of the event causing
the shares to be held in the Trust and (2) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust.
Any net sales proceeds in excess of the amount payable to the intended
transferee will be immediately paid to the Charitable Beneficiary.     
 
  In addition, shares of Common Stock held in Trust will be deemed to have
been offered for sale to IMH, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price
(as defined in the Charter) at the time of such devise or gift) and (ii) the
Market Price on the date IMH, or its designee, accepts such offer. IMH will
have the right to accept such offer until the Trustee has sold the shares held
in the Trust. Upon such a sale to IMH, the interest of the Charitable
Beneficiary in the shares sold will terminate and the Trustee will distribute
the net proceeds of the sale to the intended transferee.
 
                                      80
<PAGE>
 
  The Charter defines the term "Market Price" on any date, with respect to any
class or series of outstanding shares of IMH's stock, as the Closing Price (as
defined below) for such shares on such date. The "Closing Price" on any date
shall mean the last sale price for such shares, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such shares are not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which such shares are listed or
admitted to trading or, if such shares are not listed or admitted to trading
on any national securities exchange, the last quoted price, or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or, if such system is no longer in use, the
principal other automated quotation system that may then be in use or, if such
shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market
in such shares selected by the Board of Directors or, in the event that no
trading price is available for such shares, the fair market value of the
shares, as determined in good faith by the Board of Directors.
   
  If any purported transfer of shares of Common Stock would cause IMH to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to
such shares.     
 
  All certificates representing shares of Common Stock bear a legend referring
to the restrictions described above.
 
  Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
the Company's stock, including shares of Common Stock, within 30 days after
the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of stock of the Company beneficially owned and a
description of the manner in which such shares are held. Each such owner shall
provide to the Company such additional information as the Company may request
in order to determine the effect, if any, of such beneficial ownership on
IMH's status as a REIT and to ensure compliance with the Ownership Limit.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe, L.P., North Quincy, Massachusetts.
 
                    CERTAIN PROVISIONS OF MARYLAND LAW AND
                      
                   OF THE COMPANY'S CHARTER AND BYLAWS     
 
  The following summary of certain provisions of the MGCL and of the Charter
and the Bylaws of IMH does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and the Charter and the
Bylaws of IMH, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
For a description of additional restrictions on transfer of the Common Stock,
see "Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer."
 
REMOVAL OF DIRECTORS
 
  The Charter provides that a director may be removed from office at any time
but only by the affirmative vote of the holders of at least two-thirds of the
votes entitled to be cast in the election of directors.
 
 
                                      81
<PAGE>
 
BUSINESS COMBINATIONS
   
  Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes
an Interested Stockholder. Since ICII now beneficially owns less than 10.0% of
IMH's voting shares (excluding 50,000 shares of Common Stock issued to SPTL in
the Contribution Transaction as to which ICII disclaims beneficial ownership),
ICII is not subject to the business combination provisions of the MGCL.
However, pursuant to the statute, IMH has exempted any business combinations
involving ICII and, consequently, the five-year prohibition and the super-
majority vote requirements of the statute will not in any event apply to
business combinations between ICII and IMH. As a result, ICII may be able to
enter into business combinations with IMH, which may not be in the best
interest of the stockholders, without compliance by IMH with the super-
majority vote requirements and the other provisions of the statute.     
 
CONTROL SHARE ACQUISITIONS
 
  The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (1) one-fifth or more but less than one-third, (2) one-third or more
but less than a majority, or (3) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
 
  A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
 
  If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of
 
                                      82
<PAGE>
 
the last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
 
  The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
   
  The Bylaws of IMH contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of IMH's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.     
 
AMENDMENT TO THE CHARTER
   
  IMH reserves the right from time to time to make any amendment to its
Charter, now or hereafter authorized by law, including any amendment which
alters the contract rights as expressly set forth in the Charter, of any
shares of outstanding stock. The Charter may be amended only by the
affirmative vote of holders of shares entitled to cast not less than a
majority of all the votes entitled to be cast on the matter; provided,
however, that provisions on removal of directors may be amended only by the
affirmative vote of holders of shares entitled to cast not less than two-
thirds of all the votes entitled to be cast in the election of directors.     
   
DISSOLUTION OF THE COMPANY     
   
  The dissolution of IMH must be approved by the affirmative vote of holders
of shares entitled to cast not less than a majority of all the votes entitled
to be cast on the matter.     
 
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
   
  The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(1) pursuant to IMH's notice of the meeting, (2) by the Board of Directors or
(3) by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (b) with
respect to special meetings of stockholders, only the business specified in
IMH's notice of meeting may be brought before the meeting of stockholders and
nominations of persons for election to the Board of Directors may be made only
(1) pursuant to IMH's notice of the meeting, (2) by the Board of Directors or
(3) provided that the Board of Directors has determined that directors shall
be elected at such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions set forth in the
Bylaws.     
 
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS
   
  The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on removal of directors and the advance notice
provisions of the Bylaws could delay, defer or prevent a transaction or a
change in control of IMH that might involve a premium price for holders of
Common Stock or otherwise be in their best interest.     
 
                                      83
<PAGE>
 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
  The following summary of material federal income tax considerations
regarding the Company and the offering described herein is based on current
law, is for general information only and is not tax advice. This summary does
not purport to deal with all aspects of taxation that may be relevant to
prospective purchasers of Common Stock in light of such purchasers' particular
investment or tax circumstances, or to certain types of purchasers subject to
special treatment under the federal income tax laws, including, without
limitation, insurance companies, certain financial institutions, broker-
dealers, stockholders holding Common Stock as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes, tax-exempt organizations (except to the extent
discussed under the heading "--Taxation of Tax-Exempt Stockholders"), or
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States. In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to prospective purchasers of Common Stock.
 
  PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
 
TAXATION OF IMH
 
  General. IMH elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1995. IMH
believes that, commencing with such taxable year, it has been organized and
has operated in such a manner as to qualify for taxation as a REIT under the
Code commencing with such taxable year, and IMH intends to continue to operate
in such a manner, but no assurance can be given that it has operated or will
continue to operate in such a manner so as to qualify or remain qualified.
 
  The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following summary sets forth the material aspects
of the sections that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
 
  Latham & Watkins has acted as tax counsel to IMH in connection with the
Offering. In the opinion of Latham & Watkins, commencing with IMH's taxable
year ended December 31, 1995, IMH has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
has enabled and will enable it to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion is
based on various factual assumptions relating to the organization and
operation of IMH and is conditioned upon certain representations made by IMH
as to factual matters. In addition, this opinion is based upon the factual
representations of IMH concerning its business and assets as set forth in this
Prospectus. Furthermore, this opinion relies on, and assumes the accuracy of,
the opinions of Thacher Proffitt & Wood with respect to the characterization,
as debt, of the CMOs issued by Imperial CMB Trust Series 1996-1 ("CMB Trust")
on behalf of IMH Assets in August 1996, and with respect to the classification
of CMB Trust for federal income tax purposes. Moreover, such qualification and
taxation as a REIT depends upon IMH's ability to meet (through actual annual
operating results, distribution levels and diversity of stock owenership) the
various qualification tests imposed under the Code discussed below, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of IMH's
operation for any particular taxable year have satisfied or will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time. See "Risk Factors--Consequences
of Failure to Maintain REIT Status; IMH Subject to Tax as a Regular
Corporation" and "Failure to Qualify."
 
 
                                      84
<PAGE>
 
  If IMH qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income taxes on its net income that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, IMH will be subject to federal
income tax as follows: First, IMH will be taxed at regular corporate rates on
any undistributed "REIT taxable income," including undistributed net capital
gains. Second, under certain circumstances, IMH may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if IMH has
(i) net income from the sale or other disposition of "foreclosure property"
(defined generally as property acquired through foreclosure or otherwise as a
result of a default on a loan secured by the property or a lease of such
property) which is held primarily for sale to customers in the ordinary course
of business, or (ii) other nonqualifying net income from foreclosure property,
it will be subject to tax at the highest corporate rate on such income.
Fourth, if IMH has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily for
sale to customers in the ordinary course of business other than foreclosure
property), such income will be subject to a 100% tax. Fifth, if IMH should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which IMH fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect IMH's profitability. Sixth, if IMH should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
IMH would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if IMH has excess
inclusion income (attributable to its interest, if any, in a residual interest
in a REMIC or if all or a portion of IMH, IMH Assets, or IWLG is treated as a
taxable mortgage pool) and a disqualified organization (generally, tax-exempt
entities not subject to tax on unrelated business income, including
governmental organizations) holds shares of stock in IMH, IMH will be taxed at
the highest corporate tax rate on the amount of excess inclusion income for
the taxable year allocable to the shares held by such disqualified
organization. Eighth, with respect to any asset (a "Built-In Gain Asset")
acquired by IMH from a corporation which is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a transaction
in which the basis of the Built-In Gain Asset in the hands of IMH is
determined by reference to the basis of the asset in the hands of the C
corporation, if IMH recognizes gain on the disposition of such asset during
the ten-year period (the "Recognition Period") beginning on the date on which
such asset was acquired by IMH, then, to the extent of the Built-In Gain
(i.e., the excess of (a) the fair market value of such asset over (b) IMH's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain will be subject to tax at the highest regular
corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that IMH will make an election pursuant to IRS Notice 88-
19 and that such treatment is not modified by certain revenue proposals in
President Clinton's 1997 budget proposal.
 
  Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities); and (vii)
which meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (i) to (iv), inclusive,
must be met during the entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. For purposes
of conditions (v) and (vi), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (vi).
 
  The Company believes that it has previously issued sufficient shares of
Common Stock with sufficient diversity of ownership to allow IMH to satisfy
conditions (v) and (vi). In addition, the Charter provides for restrictions
regarding the transfer and ownership of shares, which restrictions are
intended to assist IMH in
 
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<PAGE>
 
continuing to satisfy the share ownership requirements described in (v) and
(vi) above. Such ownership and transfer restrictions are described in
"Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer." These restrictions, however, may not ensure that IMH will, in all
cases, be able to satisfy the share ownership requirements described above. If
IMH fails to satisfy such share ownership requirements, IMH's status as a REIT
will terminate. See "--Failure to Qualify."
 
  In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. IMH has a calendar taxable year.
 
  Ownership of IWLG and IMH Assets. IMH has owned 100% of the stock of IWLG
and IMH Assets (the "QRSs") at all times such QRSs have been in existence. As
a result, the QRSs will be treated as "qualified REIT subsidiaries." Code
Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" will not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" will be treated as assets, liabilities and such items (as the case
may be) of the REIT for all purposes of the Code including the REIT
qualification tests. Thus, in applying the requirements described herein, the
QRSs will be ignored, and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as assets,
liabilities and such items (as the case may be) of IMH. For this reason,
references under "Federal Income Tax Considerations" to the income and assets
of IMH shall include the income and assets of the QRSs. Because the QRSs will
be treated as a "qualified REIT subsidiaries" they will not be subject to
federal income tax. In addition, IMH's ownership of the voting stock of the
QRSs will not violate the restrictions against ownership of securities of any
one issuer which constitute more than 10% of such issuer's voting securities
or more than 5% of the value of IMH's total assets, described below under "--
Asset Tests."
 
  Income Tests. In order to maintain its qualification as a REIT, IMH annually
must satisfy three gross income requirements. First, at least 75% of IMH's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from: (i) rents from real
property; (ii) interest on obligations secured by mortgages on real property
or on interests in real property; (iii) gain from the sale or other
disposition of real property (including interests in real property and
interests in mortgages on real property) not held primarily for sale to
customers in the ordinary course of business; (iv) dividends or other
distributions on, and gain (other than gain from prohibited transactions) from
the sale or other disposition of, transferable shares in other real estate
investment trusts; (v) abatements and refunds of taxes on real property; (vi)
income and gain derived from foreclosure property; (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property
(including interests in real property and interests in mortgages on real
property); (viii) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction; and (ix) qualified temporary
investment income. Second, at least 95% of IMH's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from the sources described above with respect to the 75% gross income test,
dividends, interest, and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). Third, subject to
certain exceptions in the year in which IMH is liquidated, short-term gain
from the sale or other disposition of stock or securities, gain from
prohibited transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales or other dispositions of foreclosure property) must represent less than
30% of IMH's gross income (including gross income from prohibited
transactions) for each taxable year.
 
  The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
 
  Generally, if a loan is secured by both personal property and real property,
interest must be allocated between the personal property and the real
property, with only the interest allocable to the real property
 
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<PAGE>
 
qualifying as mortgage interest under the 75% gross income test. Treasury
Regulations provide that if a loan is secured by both personal and real
property and the fair market value of the real property as of the commitment
date (generally, the date on which the REIT's obligation to make the loan
becomes binding) equals or exceeds the amount of the loan, the entire interest
amount will qualify under the 75% gross income test. If the amount of the loan
exceeds the fair market value of the real property as of the commitment date,
the interest income allocated to the real property is an amount equal to the
interest income multiplied by a fraction, the numerator of which is the fair
market value of the real property as of the commitment date, and the
denominator of which is the amount of the loan. The interest income allocated
to the personal property is an amount equal to the excess of the total
interest income over the interest income allocated to the real property.
 
  Interest earned on mortgage loans, and mortgage-backed securities secured by
or representing an interest in such loans, will qualify as "interest" for
purposes of both the 95% and 75% gross income tests to the extent such assets
are treated as obligations secured by mortgages on real property or on
interests in real property. However, income attributable to securities or
other obligations that are not treated as obligations secured by mortgages on
real property or on interests in real property (and which are not otherwise
qualified REIT Assets), dividends on stock (including any dividends IMH
receives from ICIFC, but not including dividends IMH receives from other
qualifying REITs or from the QRSs), and gains from the sale or disposition of
such stock or such securities or other obligations will not qualify under the
75% gross income test. Such income will qualify under the 95% gross income
test, however, if such income constitutes interest, dividends or gain from the
sale or disposition of stock or securities. Income from loan guarantee fees,
mortgage servicing contracts or other contracts will not qualify under either
the 95% or 75% gross income test if such income constitutes fees for services
rendered by IMH or is not treated as interest (on obligations secured by
mortgages on real property or on interests in real property for purposes of
the 75% gross income test). Similarly, income from hedging, including the sale
of hedges, will not qualify under the 75% or 95% gross income tests unless
such hedges constitute Qualified Hedges, in which case such income will
qualify under the 95% gross income test.
 
  Furthermore, ICIFC receives servicing and processing fees and income from
gain on the sale of certain mortgage loans and mortgage securities. Such fees
do not accrue to IMH, but IMH receives dividends on its nonvoting preferred
stock in ICIFC. Such dividends will qualify under the 95% gross income test,
but will not qualify under the 75% gross income test.
 
  In order to comply with the 95% and 75% gross income tests, IMH has limited
and will continue to limit substantially all of the assets that it acquires to
mortgage loans or other securities or obligations that are treated as
obligations secured by mortgages on real property or on interests in real
property or to other Qualified REIT Assets. As a result, IMH may limit the
type of assets, including hedging contracts, that it otherwise might acquire
and, therefore, the type of income it otherwise might receive, including
income from hedging, other than income from Qualified Hedges. See "Business--
Hedging."
 
  In addition, to comply with the 30% gross income test, IMH may have to hold
mortgage loans and mortgage-backed securities for four or more years and other
securities and hedges for one year or more at times when IMH might otherwise
have opted for the disposition of such assets for short term gains.
 
  In order to comply with the REIT gross income tests, IMH has monitored and
will continue to monitor its income, including income from dividends,
warehouse lending, hedging transactions, futures contracts, servicing and
sales of Mortgage Assets, gains on the sale of securities, and other income
not derived from Qualified REIT Assets. IMH believes that the aggregate amount
of any nonqualifying income in any taxable year has not exceeded and will not
exceed the limit on nonqualifying income under the gross income tests.
 
  If IMH fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if IMH's failure to meet such tests was
due to reasonable cause and not due to willful neglect, IMH attaches a
schedule of the sources of its income to its federal income tax return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible,
 
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<PAGE>
 
however, to state whether in all circumstances IMH would be entitled to the
benefit of these relief provisions. For example, if IMH fails to satisfy the
gross income tests because nonqualifying income that IMH intentionally incurs
exceeds the limits on such income, the Service could conclude that IMH's
failure to satisfy the tests was not due to reasonable cause. If these relief
provisions are inapplicable to a particular set of circumstances involving
IMH, IMH will not qualify as a REIT. As discussed above in "Federal Income Tax
Considerations--Taxation of IMH--General," even if these relief provisions
apply and IMH retains its status as a REIT, a 100% tax would be imposed on an
amount equal to (a) the gross income attributable to the greater of the amount
by which IMH failed the 75% or 95% test multiplied by (b) a fraction intended
to reflect IMH's profitability. There can be no assurance that IMH will always
be able to maintain compliance with the gross income tests for REIT
qualification despite its periodic monitoring procedures. No similar
mitigation provision provides relief if IMH fails the 30% gross income test.
In such case, IMH would cease to qualify as a REIT. See "--Failure to
Qualify."
 
  Any gain realized by IMH on the sale of any property (including mortgage
loans and mortgage-backed securities) held as inventory or other property held
primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income may also have an adverse
effect upon IMH's ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect
to the particular transaction. ICIFC securitizes mortgage loans and sells the
resulting mortgage securities. See "Business--Conduit Operations--
Securitization and Sale Process." If IMH were to sell such mortgage securities
on a regular basis, there is a substantial risk that such sales would
constitute prohibited transactions and that all of the profits therefrom would
be subject to a 100% tax. Therefore, such sales have been made and will be
made only by ICIFC. ICIFC is not subject to the 100% penalty tax on income
from prohibited transactions, which is only applicable to a REIT.
 
  Asset Tests. IMH, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of IMH's total assets must be represented by Qualified REIT
Assets, cash, cash items and government securities. Second, not more than 25%
of IMH's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by IMH may not exceed 5% of the
value of IMH's total assets and IMH may not own more than 10% of any one
issuer's outstanding voting securities. IMH believes that substantially all of
its assets, other than the nonvoting preferred stock of ICIFC, are Qualified
REIT Assets.
 
  As described above, IMH will be treated as owning all assets, liabilities
and items of income, deduction, and credit of the QRSs. IWLG provides short-
term lines of credit ("warehouse loans") to ICIFC and approved mortgage banks,
most of which are correspondents of ICIFC, to finance mortgage loans during
the time from the closing of the loans to their sale or other settlement with
pre-approved investors, including IMH. IWLG's warehouse loans are secured by
pledges of mortgage notes owned by the borrowers that in turn are secured by
mortgages on real property. The Service has ruled that similar warehouse loans
are Qualified REIT Assets and that interest received on such loans is
qualifying interest under the 95% and 75% gross income tests.
 
  As described above, IMH owns 100% of the nonvoting preferred stock of ICIFC.
IMH does not and will not own any of the voting securities of ICIFC, and
therefore IMH will not be considered to own more than 10% of the voting
securities of ICIFC. In addition, IMH believes that the aggregate value of its
securities of ICIFC has not at any time exceeded 5% of the total value of
IMH's assets, and will not exceed such amount in the future. Latham & Watkins,
in rendering its opinion as to the qualification of IMH as a REIT, is relying
on the representation of IMH to such effect. No independent appraisals have
been obtained to support this conclusion. There can be no assurance that the
Service will not contend that the value of the securities of ICIFC held by IMH
exceeds the 5% value limitation.
 
  The 5% value test requires that IMH revalue its assets at the end of each
calendar quarter in which IMH acquires additional securities in ICIFC for the
purpose of applying such test. Although IMH plans to take steps to ensure that
it satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can
 
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<PAGE>
 
be no assurance that such steps will always be successful, or will not require
a reduction in IMH's overall interest in ICIFC.
 
  IMH has taken and will continue to take measures to prevent the value of
securities issued by any one entity that do not constitute Qualified REIT
Assets from exceeding 5% of the value of IMH's total assets as of the end of
each calendar quarter. In particular, as of the end of each calendar quarter,
IMH has limited and diversified and will continue to limit and diversify its
ownership of securities of ICIFC and other securities that do not constitute
Qualified REIT Assets as necessary to satisfy the REIT asset tests described
above.
 
  When purchasing mortgage-related securities, IMH and its counsel may rely on
opinions of counsel for the issuer or sponsor of such securities given in
connection with the offering of such securities, or statements made in related
offering documents, for purposes of determining whether and to what extent
those securities constitute Qualified REIT Assets for purposes of the REIT
asset tests and produce income which qualifies under the REIT gross income
tests discussed above.
 
  A regular or residual interest in a REMIC will be treated as a Qualified
REIT Asset for purposes of the REIT asset tests and income derived with
respect to such interests will be treated as interest on obligations secured
by mortgages on real property, assuming that at least 95% of the assets of the
REMIC are Qualified REIT Assets. If less than 95% of the assets of the REMIC
are Qualified REIT Assets, only a proportionate share of the assets of and
income derived from the REMIC will be treated as qualifying under the REIT
asset and income tests. IMH believes that its REMIC interests fully qualify
for purposes of the REIT gross income and asset tests.
 
  If IMH invests in a partnership, it will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership shall retain the
same character in the hands of IMH for purposes of the REIT gross income and
asset tests.
 
  After initially meeting the asset tests at the close of any quarter, IMH
will not lose its status as a REIT for failure to satisfy the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by the
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. IMH intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance. If IMH fails to cure noncompliance with the asset
tests within such time period, IMH would cease to qualify as a REIT.
 
  Annual Distribution Requirements. IMH, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of IMH's
"REIT taxable income" (generally, income of IMH computed without regard to the
dividends paid deduction and by excluding its net capital gain) and (b) 95% of
the excess of the net income, if any, from foreclosure property over the tax
imposed on such income, minus (ii) the excess of the sum of certain items of
noncash income over 5% of "REIT taxable income." In addition, if IMH disposes
of any Built-In Gain Asset during its Recognition Period, IMH will be
required, pursuant to Treasury Regulations which have not yet been
promulgated, to distribute at least 95% of the Built-in Gain (after tax), if
any, recognized on the disposition of such asset. Such distributions must be
paid in the taxable year to which they relate, or in the following taxable
year if declared before IMH timely files its tax return for such year and if
paid on or before the first regular dividend payment date after such
declaration and if IMH so elects and specifies the dollar amount on its tax
return. Such distributions are taxable to holders of Common Stock (other than
certain tax-exempt entities, as discussed below) in the year in which paid,
even if such distributions relate to the prior year for purposes of IMH's 95%
distribution requirement. The amount distributed must not be preferential
(e.g., each holder of shares of Common Stock must receive the same
distribution per share). To the extent that IMH does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted,
 
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it will be subject to tax on the undistributed portion at regular ordinary and
capital gain corporate tax rates. Furthermore, if IMH should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
IMH would be subject to a 4% excise tax on the excess of such required
distributions over the amounts actually distributed. IMH intends to make
timely distributions sufficient to satisfy these annual distribution
requirements.
 
  IMH anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the distribution requirements described above. It is
possible, however, that IMH, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of IMH. For instance, IMH may
realize income without a corresponding cash payment, as in the case of
original issue discount or accrued interest on defaulted mortgage loans. In
the event that such timing differences occur, in order to meet the
distribution requirements, IMH may find it necessary to sell assets, arrange
for short-term, or possibly long-term, borrowings, or pay dividends in the
form of taxable stock dividends.
 
  The Service has ruled that if a REIT's dividend reinvestment plan allows
stockholders of the REIT to elect to have cash distributions reinvested in
shares of the REIT at a purchase price equal to at least 95% of fair market
value on the distribution date, then such cash distributions reinvested
pursuant to such a plan qualify under the 95% distribution test. The terms of
IMH's DRP will comply with this ruling. See "Dividend Reinvestment Plan."
 
  Under certain circumstances, IMH may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in IMH's deduction for
dividends paid for the earlier year. Thus, IMH may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, IMH will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
 
RECORDKEEPING REQUIREMENTS
 
  A REIT is required to maintain certain records, including records regarding
the actual and constructive ownership of its shares, and within 30 days after
the end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's shares (e.g., if IMH has 2,000 or more
stockholders of record, from persons holding 5% or more of IMH's outstanding
shares of Common Stock; if IMH has over 200 but fewer than 2,000 stockholders
of record, from persons holding 1% or more of IMH's outstanding shares of
Common Stock; and if IMH has 200 or fewer shareholders of record, from persons
holding 1/2% or more of IMH's outstanding shares of Common Stock) regarding
their ownership of shares. In addition, IMH must maintain, as part of its
records, a list of those persons failing or refusing to comply with this
demand. Shareholders who fail or refuse to comply with the demand must submit
a statement with their tax returns setting forth the actual stock ownership
and other information. IMH has maintained and will continue to maintain the
records and demand statements as required by Treasury Regulations.
 
FAILURE TO QUALIFY
 
  If IMH fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, IMH will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which IMH fails to qualify
will not be deductible by IMH nor will they be required to be made. As a
result, IMH's failure to qualify as a REIT would substantially reduce the cash
available for distribution by IMH to its stockholders. In addition, if IMH
fails to qualify as a REIT, all distributions to stockholders will be taxable
as ordinary income, to the extent of IMH's current and accumulated earnings
and profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, IMH
 
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will also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances IMH would be entitled to such statutory
relief. Failure to qualify for even one year could result in the IMH's
incurring substantial indebtedness (to the extent borrowings are feasible) or
liquidating substantial investments in order to pay the resulting taxes.
 
TAXATION OF TAXABLE U.S. STOCKHOLDERS
 
  As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, or (iii) is an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source.
 
  As long as IMH qualifies as a REIT, distributions made by IMH out of its
current or accumulated earnings and profits (and not designated as capital
gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for
the dividends received deduction in the case of U.S. Stockholders that are
corporations. Distributions made by IMH that are properly designated by IMH as
capital gain dividends will be taxable to taxable U.S. Stockholders as long-
term capital gains (to the extent that they do not exceed IMH's actual net
capital gain for the taxable year) without regard to the period for which a
U.S. Stockholder has held his shares of Common Stock. U.S. Stockholders that
are corporations may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that IMH makes
distributions (not designated as capital gain dividends) in excess of its
current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to each U.S. Stockholder,
reducing the adjusted basis which such U.S. Stockholder has in his shares of
Common Stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. Stockholder's adjusted
basis in his shares taxable as long-term capital gains (or short-term capital
gains if the shares have been held for one year or less), provided that the
shares have been held as a capital asset. IMH will notify stockholders at the
end of each year as to the portions of the distributions which constitute
ordinary income, net capital gain or return of capital. Dividends declared by
IMH in October, November, or December of any year and payable to a stockholder
of record on a specified date in any such month shall be treated as both paid
by IMH and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by IMH on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any net operating losses or capital losses of IMH.
 
  Distributions made by IMH and gain arising from the sale or exchange by a
U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by IMH (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of Common Stock, however, will not be treated as investment income unless the
U.S. Stockholder elects to reduce the amount of such U.S. Stockholder's total
net capital gain eligible for the 28% maximum capital gains rate by the amount
of such gain with respect to such Common Stock.
 
  Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
other property received on such sale or other disposition and (ii) the
holder's adjusted basis in such shares of Common Stock for tax purposes. Such
gain or loss will be capital gain or loss if the shares have been held by the
U.S. Stockholder as a capital asset, and will be long-term gain or loss if
such shares have been held for more than one year. In general, any loss
recognized by a U.S. Stockholder upon the sale or other disposition of shares
of Common Stock that have been held for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions received by such U.S. Stockholder from IMH which
were required to be treated as long-term capital gains.
 
 
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  IMH has not acquired and does not expect to acquire or retain residual
interests issued by REMICs. Such residual interests, if acquired by a REIT,
could generate excess inclusion income taxable to the REIT's stockholders in
proportion to the dividends received from the REIT. Excess inclusion income
cannot be offset by net operating losses of a stockholder. If the stockholder
of a REIT holding a residual interest in a REMIC is a tax-exempt entity, the
excess inclusion income is fully taxable to such stockholder as unrelated
business taxable income. If allocated to a Non-U.S. Stockholder (as defined
below), the excess inclusion income is subject to federal income tax
withholding without reduction pursuant to any otherwise applicable tax treaty.
Potential investors, and in particular, tax-exempt entities, are urged to
consult with their tax advisors concerning this issue. A REIT, rather than its
stockholders, will be taxed (at the highest corporate tax rate) on the amount
of excess inclusion income for the taxable year allocable to shares of Common
Stock held by disqualified organizations (generally, tax-exempt entities not
subject to tax on unrelated business income, including governmental
organizations).
 
  IMH (either directly or through its QRSs) has financed and intends to
continue to finance the acquisition of mortgage assets by entering into
secured lending transactions or reverse repurchase agreements, which are
essentially loans secured by IMH's mortgage assets. If the Service were to
successfully take the position that such secured lending transactions or
reverse repurchase agreements result in IMH having issued debt instruments
(i.e., the secured loans or the reverse repurchase agreements) with differing
maturity dates secured by a pool of mortgage loans, IMH or either of the QRSs
could be treated, in whole or in part, as a taxable mortgage pool. In this
case, a portion of IMH's income could be characterized as excess inclusion
income which would subject stockholders (or IMH, to the extent Common Stock is
held by disqualified organizations) to the tax treatment described above with
respect to residual interests in REMICs. IMH intends to take the position that
such arrangement does not create a taxable mortgage pool or excess inclusion
income. In the absence of any definitive authority on this issue, there can be
no assurance regarding whether the secured loans or reverse repurchase
agreements will not cause IMH to realize excess inclusion income.
 
WITHHOLDING
 
  IMH will report to its U.S. Stockholders and the Service the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Stockholder that does not provide IMH with
his correct taxpayer identification number may also be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, IMH
may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to IMH.
 
TAXATION OF TAX-EXEMPT STOCKHOLDERS
 
  Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a 401(k) plan, that
holds Common Stock as an investment will not be subject to tax on dividends
paid by IMH. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
from the Common Stock will be subject to tax. In addition, under some
circumstances certain pension plans (including 401(k) plans but not including
IRAs and government pension plans) that own more than 10% (by value) of IMH's
outstanding stock, including Common Stock, could be subject to tax on a
portion of their Common Stock dividends even if their Common Stock is held for
investment and is not treated as acquired with borrowed funds. The ownership
limit (see "Description of Capital Stock--Repurchase of Shares and
Restrictions on Transfer"), however, should prevent this result. Tax-exempt
investors may also be subject to tax on distributions from IMH to the extent
IMH has excess inclusion income. See "--Taxation of Taxable U.S.
Stockholders."
 
                                      92
<PAGE>
 
TAXATION OF NON-U.S. STOCKHOLDERS
 
  The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements
on distributions from IMH and with respect to their sale or other disposition
of Common Stock, except to the extent reduced or eliminated by an income tax
treaty between the United States and the Non-U.S. Stockholder's country. A
Non-U.S. Stockholder who is a stockholder of record and is eligible for
reduction or elimination of withholding must file an appropriate form with IMH
in order to claim such treatment. Non-U.S. Stockholders should consult their
own tax advisors concerning the federal income tax consequences to them of a
purchase of shares of IMH's Common Stock including the federal income tax
treatment of dispositions of interests in, and the receipt of distributions
from, IMH.
 
OTHER TAX CONSEQUENCES
 
  ICIFC will not qualify as a REIT and will pay federal, state and local
income taxes on its taxable income at normal corporate rates. As a result,
ICIFC is able to distribute only its net after-tax earnings to its
shareholders, including IMH, as dividend distributions, thereby reducing the
cash available for distribution by IMH to its stockholders.
 
  IMH and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of IMH and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
IMH.
 
                                ERISA INVESTORS
 
  A fiduciary of a pension, profit-sharing, stock bonus plan or individual
retirement account, including a plan for self-employed individuals and their
employees or any other employee benefit plan (collectively, a "Plan") subject
to the prohibited transaction provisions of the Code or the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), should consider (1) whether the ownership of the Common Stock
is in accordance with the documents and instruments governing the Plan, (2)
whether the ownership of the Common Stock is consistent with the fiduciary's
responsibilities and satisfies the requirements of Part 4 of Subtitle A of
Title I of ERISA (if applicable) and, in particular, the diversification,
prudence and liquidity requirements of Section 404 of ERISA, (3) the
prohibitions under ERISA on improper delegation of control over, or
responsibility for "plan assets" and ERISA's imposition of co-fiduciary
liability on a fiduciary who participates in, or permits (by action or
inaction) the occurrence of, or fails to remedy a known breach of duty by
another fiduciary with respect to plan assets, and (4) the need to value the
assets of the Plan annually.
 
                                      93
<PAGE>
 
                                 UNDERWRITING
 
  Under the terms of and subject to the conditions contained in the
underwriting agreement (the "Underwriting Agreement") between the Company, and
the Underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated, Oppenheimer & Co., Inc., Stifel, Nicolaus & Company,
Incorporated and EVEREN Securities, Inc. are acting as representatives (the
"Representatives"), the Underwriters have severally agreed to purchase from
the Company and the Company has agreed to sell to the Underwriters severally
the respective number of shares set forth opposite its name below:
 
<TABLE>
<CAPTION>
                                                                       NUMBER OF
      UNDERWRITERS                                                      SHARES
      ------------                                                     ---------
      <S>                                                              <C>
      PaineWebber Incorporated........................................
      Oppenheimer & Co., Inc. ........................................
      Stifel, Nicolaus & Company, Incorporated........................
      EVEREN Securities, Inc..........................................
                                                                       ---------
        Total......................................................... 2,500,000
                                                                       =========
</TABLE>
 
  In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock being sold pursuant to the Underwriting Agreement
(other than those covered by the over-allotment option described below), if
any shares of Common Stock are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
 
  The Company has been advised by the Representatives that the Underwriters
propose to offer the shares in part to the public at the public offering price
set forth on the cover page of this Prospectus, and in part to certain
securities dealers (who may include Underwriters) at such price less a
concession not in excess of $   per share, and that the Underwriters and such
dealers may reallow to certain dealers a discount not in excess of $   per
share. After commencement of the public offering, the public offering price,
concessions to selected dealers and the discount to other dealers may be
changed by the Representatives.
   
  The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase, at the
Offering price less the underwriting discount and commissions set forth on the
cover page of this Prospectus, 375,000 additional shares of Common Stock. The
Underwriters may exercise such option only to cover over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such option shares as it was obligated to
purchase pursuant to the Underwriting Agreement.     
 
  The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Federal securities laws, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.
 
 
                                      94
<PAGE>
 
  The Company, ICII, SPTL and the Manager have also agreed with the
Underwriters that, for a period of 120 days following the commencement of this
Offering, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to acquire such shares (other than
pursuant to employee plans) without the prior written consent of PaineWebber
Incorporated.
 
  Certain of the Underwriters, including the Representatives, have in the past
performed, and may continue to perform investment banking services for the
Company and its affiliates and have received customary compensation therefor.
In addition, an affiliate of PaineWebber Incorporated has, in the ordinary
course of business, extended to the Company a secured warehouse and repurchase
credit facility.
 
                                 LEGAL MATTERS
 
  The validity of the Common Stock offered hereby will be passed on for the
Company by Freshman, Marantz, Orlanski, Cooper & Klein, Beverly Hills,
California, certain legal matters, including certain tax matters, will be
passed on for the Company by Latham & Watkins, Los Angeles, California, and
certain legal matters with respect to Maryland law will be passed on for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain
legal matters will be passed on for the Underwriters by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.
 
                                    EXPERTS
 
  The financial statements of Imperial Credit Mortgage Holdings, Inc. and ICI
Funding Corporation as of December 31, 1995 and 1994, and for each of the
years in the three-year period ended December 31, 1995, have been included
herein in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. Each of the
reports of KPMG Peat Marwick LLP covering the December 31, 1995 financial
statements contain an explanatory paragraph that states the Company adopted
the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" for the year ended December 31,
1995.
 
                                   GLOSSARY
 
  As used in this Prospectus, the capitalized and other terms listed below
have the meanings indicated.
   
  "Affiliated Person" means of any entity: (1) any person directly or
indirectly owning, controlling, or holding with the power to vote, five
percent (5%) or more of the outstanding voting securities of such entity;
(2) any person five percent (5%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with power to
vote, by such entity; (3) any person directly or indirectly controlling,
controlled by, or under common control with, such entity or (4) any officer,
director or employee of such entity or any person set forth in (1), (2) or (3)
above. Any person who owns beneficially, either directly or through one or
more controlled companies, more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed to control such entity. Any person
who does not so own more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed not to control such entity. A
natural person shall be presumed not to be a controlled entity.     
 
  "Agency" means FNMA, FHLMC or GNMA.
 
  "Agency Certificates" means Pass-Through Certificates guaranteed by FNMA,
FHLMC or GNMA.
 
  "AMEX" means American Stock Exchange, Inc.
 
 
                                      95
<PAGE>
 
  "ARM" means a mortgage loan or any mortgage loan underlying a Mortgage
Security that features adjustments of the underlying interest rate at
predetermined times based on an agreed margin to an established index. An ARM
is usually subject to periodic interest rate and/or payment caps and a
lifetime interest rate cap.
 
  "Average Net Worth" means the arithmetic average of the sum of the gross
proceeds from any sale of equity securities by the Company, before deducting
any underwriting discounts and commissions and other expenses and costs
relating to the offering, plus the Company's retained earnings (without taking
into account any losses incurred in prior periods) computed by taking the
daily average of such values during such period.
 
  "Bankruptcy Code" means Title 11, United States Code, as amended.
 
  "Charter" means the Articles of Incorporation of IMH and amendments thereto.
 
  "CMO" means an adjustable or fixed-rate debt obligation (bond) that is
collateralized by mortgage loans or mortgage certificates and issued by
private institutions or issued or guaranteed by FNMA, FHLMC or GNMA.
 
  "CMT Index" means the one year constant maturity Treasury index.
 
  "Code" means the Internal Revenue Code of 1986, as amended.
 
  "Commission" means the Securities and Exchange Commission.
 
  "Company" means IMH, ICIFC and IWLG as a combined entity unless the context
requires otherwise.
 
  "Conduit Operations" means ICIFC.
 
  "Conforming loan" or "conforming mortgage loan" means a mortgage loan that
complies with requirements for inclusion in credit support programs sponsored
by FHLMC or FNMA which are secured by first or second mortgages or deeds of
trust on single-family (one to four units) residences.
 
  "11th District Cost of Funds" means the index made available monthly by the
Federal Home Loan Bank Board of the cost of funds to members of the Federal
Home Loan Bank 11th District.
 
  "ERISA" means the Employee Retirement Income Security Act of 1974.
 
  "ERISA Plan" or "Plan" means a pension, profit-sharing, retirement or other
employee benefit plan which is subject to ERISA.
 
  "Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
  "5/25 mortgage loan" means a loan that adjusts on a one-time basis
approximately five years following origination to an interest rate based upon
a defined index plus a spread.
 
  "FHA" means the United States Federal Housing Administration.
 
  "FHLMC" means the Federal Home Loan Mortgage Corporation.
 
  "FMAC" means Franchise Mortgage Acceptance Company LLC.
 
  "FNMA" means the Federal National Mortgage Association.
 
  "GAAP" means generally accepted accounting principles.
 
  "GNMA" means Government National Mortgage Association.
 
 
                                      96
<PAGE>
 
  "Gross Mortgage Assets" means for any month the weighted average aggregate
book value of the Mortgage Assets, before reserves for depreciation or bad
debts or other similar noncash reserves, computed at the end of such month.
 
  "HUD" means the Department of Housing and Urban Development.
 
  "ICIFC" means ICI Funding Corporation, a California corporation that
conducts the Conduit Operations.

  "IMH" means Imperial Credit Mortgage Holdings, Inc., a Maryland corporation.
 
  "IMH Assets" means IMH Assets Corp., a California corporation.

  "Interim Period" means the period from November 20, 1995 through December
31, 1995.
 
  "Investment Company Act" means the Investment Company Act of 1940, as
amended.
 
  "ISOs" means qualified incentive stock options granted under the Stock
Option Plan, which meet the requirements of Section 422 of the Code.
 
  "IWLG" means Imperial Warehouse Lending Group, Inc., a California
corporation that is treated as a Qualified REIT Subsidiary of IMH.
 
  "Keogh Plans" means H.R. 10 Plans.
 
  "LIBOR" means the London interbank offered rate.
 
  "Long-Term Investment Operations" means IMH.
 
  "LTV" or "loan-to-value ratio" means the percentage obtained by dividing the
principal amount of a loan by the lower of the sales price or appraised value
of the mortgaged property when the loan is originated.
 
  "Master Commitments" means commitments issued by the Company which will
obligate the Company to purchase Mortgage Assets from the holders of the
commitment for a specified period of time, in a specified aggregate principal
amount and at a specified price.
 
  "MGCL" means the Maryland General Corporation Law, as amended from time to
time.
 
  "Mortgage Assets" means (1) mortgage loans, (2) mortgage-backed securities
and (3) other mortgage interests, in each case which constitute Real Estate
Assets.
 
  "mortgage-backed securities" means (1) pass-through certificates, (2) CMOs
and (3) REMICs.
 
  "mortgage loans" means both conforming mortgage loans and non-conforming
mortgage loans.
 
  "MSRs" means mortgage servicing rights.
 
  "Net Income" means the net income of the Company determined in accordance
with GAAP before the Manager's incentive compensation, the deduction for
dividends paid, and any net operating loss deductions arising from losses in
prior periods. The Company's interest expenses for borrowed money shall be
deducted in calculating Net Income.
 
  "non-conforming loan" or "non-conforming mortgage loan" means a mortgage
loan that does not qualify for purchase by government-sponsored entities such
as FNMA and FHLMC.
 
 
                                      97
<PAGE>
 
   
  "Ownership Limit" means 9.5% (in value or in number of shares, whichever is
more restrictive) of the aggregate of the outstanding shares of Common Stock,
as may be increased or, subject to limitations, reduced by the Board of
Directors of IMH.     
 
  "Pass-Through Certificates" means securities (or interests therein) which
are Qualified REIT Assets evidencing undivided ownership interests in a pool
of mortgage loans, the holders of which receive a "pass-through" of the
principal and interest paid in connection with the underlying mortgage loans
in accordance with the holders' respective, undivided interests in the pool.
Pass-Through Certificates evidence interests in loans secured by single
family, but not multifamily or commercial, real estate properties.
 
  "Privately-Issued Certificates" means privately-issued Pass-Through
Certificates issued by the Company or an affiliate of the Company or other
non-Agency third party issuer.
 
  "Qualified Hedge" means a bona fide interest rate swap or cap agreement
entered into by IMH to hedge variable rate indebtedness only, that IMH
incurred or expects to incur to acquire or carry Qualified REIT Assets.
 
  "Qualified REIT Assets" means (i) real property (including interests in real
property and interests in mortgages on real property), (ii) shares (or
transferable certificates of beneficial interest) in other REITs which meet
the requirements of Sections 856-859 of the Code, (iii) stock or debt
instruments (not otherwise described in (i), (ii) or (iv)) held for not more
than one year that were purchased with the proceeds of (a) an offering of
stock in IMH (other than amounts received pursuant to a dividend reinvestment
plan) or (b) a public offering of debt obligations of IMH which have
maturities of at least 5 years, and (iv) a regular or residual interest in a
REMIC, but only if 95% or more of the assets of such REMIC are assets
described in (i) through (iii).
 
  "Qualified REIT Subsidiary" means a corporation whose stock is entirely
owned by the REIT at all times during such corporation's existence.
 
  "Qualifying Interests" means "mortgages and other liens on and interests in
real estate," as defined in Section 3(c)(5)(C) under the Investment Company
Act.
 
  "Real Estate Asset" means interests in real property, interests in mortgages
on real property, and regular interests in REMICS.
   
  "REIT" means a real estate investment trust as defined under Section 856 of
the Code.     
 
  "REMIC" means serially maturing debt securities secured by a pool of
mortgage loans, the payments on which bear a relationship to the debt
securities and the issuer of which qualifies as a Real Estate Mortgage
Investment Conduit as defined under Section 860D of the Code.
 
  "Return on Equity" means return calculated for any quarter by dividing the
Company's Net Income for the quarter by its Average Net Worth for the quarter.
 
  "reverse repurchase agreement" means a borrowing device by an agreement to
sell securities or other assets to a third party and a simultaneous agreement
to repurchase them at a specified future date and price, the price difference
constituting the interest on the borrowing.
 
  "Securities Act" means the Securities Act of 1933, as amended.
 
  "Service" means the United States Internal Revenue Service.
 
  "SPFC" means Southern Pacific Funding Corporation, a California corporation
and a subsidiary of ICII.
 
  "SPTL" means Southern Pacific Thrift and Loans Association, a state
chartered industrial loan law.
 
 
                                      98
<PAGE>
 
  "Tax-Exempt Entity" means a qualified pension, profit-sharing or other
employee retirement benefit plan, Keogh Plan, bank commingled trust fund for
such plans, an IRA or other similar entity intended to be exempt from federal
income taxation.
 
  "Ten Year U.S. Treasury Rate" means the average of the weekly average yield
to maturity for U.S. Treasury securities (adjusted to a constant maturity of
10 years) as published weekly by the Federal Reserve Board during a quarter.
 
  "25% entity" means any entity of which ICII owns 25% or more of the voting
securities.
 
  "25% Incentive Payment" means incentive compensation for each fiscal
quarter, in an amount equal to 25% of the Net Income of the Company, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the Ten Year U.S. Treasury
Rate plus 2%.
 
  "UBTI" means "unrelated trade or business taxable income" as defined in
Section 512 of the Code.
 
  "Unaffiliated Director" means a Director who is independent of the Company,
any manager of the Company (including ICAI) and ICII and its Affiliated
Persons.
 
  "VA" means the United States Department of Veterans Affairs.
 
  "Warehouse Lending Operations" means IWLG.
 
                                      99
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
<TABLE>
<S>                                                                          <C>
 Independent Auditors' Report............................................... F-2
 Consolidated Balance Sheets................................................ F-3
 Consolidated Statements of Operations...................................... F-4
 Consolidated Statements of Changes in Stockholders' Equity................. F-5
 Consolidated Statements of Cash Flows...................................... F-6
 Notes to Consolidated Financial Statements................................. F-7
</TABLE>
 
                            ICI FUNDING CORPORATION
 
<TABLE>
<S>                                                                         <C>
 Independent Auditors' Report.............................................. F-28
 Balance Sheets............................................................ F-29
 Statements of Operations.................................................. F-30
 Statements of Changes in Shareholders' Equity............................. F-31
 Statements of Cash Flows.................................................. F-32
 Notes to Financial Statements............................................. F-33
</TABLE>
 
                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Imperial Credit Mortgage Holdings, Inc.:
 
We have audited the accompanying consolidated balance sheets of Imperial
Credit Mortgage Holdings, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Imperial Credit Mortgage Holdings, Inc. and subsidiaries as of December 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
 
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" for the year ended December 31,
1995.
 
                                KMPG Peat Marwick LLP
 
 
Orange County, California
January 25, 1996
 
                                      F-2
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                DECEMBER 31,
                            SEPTEMBER 30,  ------------------------
                                1996           1995         1994
                            -------------  ------------  ----------
                             (UNAUDITED)
          ASSETS
          ------
<S>                         <C>            <C>           <C>         
Cash and cash equivalents.  $  4,988,223   $  2,284,482  $      --
Investment securities
 available-for-sale.......    47,942,144     17,378,238         --
Loan Receivables:
 CMO collateral...........   544,212,602            --          --
 Finance receivables......   183,426,929    583,021,113   3,119,814
 Mortgage loans held for
  investment..............     1,238,391            --          --
 Allowance for loan loss-
  es......................    (3,838,684)      (100,000)    (95,374)
Lease payment receivables
 held for sale............           --       8,440,644         --
Accrued interest receiv-
 able.....................     6,986,645      1,645,414       5,136
Due from affiliates.......       669,826        113,089         --
Investment in ICI Funding
 Corporation..............     9,712,334        865,839   6,335,058
Other assets..............       103,549         39,512         --
                            ------------   ------------  ----------
                            $795,441,959   $613,688,331  $9,364,634
                            ============   ============  ==========
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
<S>                         <C>            <C>           <C>         
CMO borrowings............  $517,875,338   $        --   $      --
Reverse-repurchase agree-
 ments....................   191,128,817    567,727,361         --
Borrowings from SPTL......           --             --    2,511,379
Accrued dividends.........     3,519,100            --          --
Other liabilities.........     1,690,412        725,146         --
Due to affiliates.........        41,246            --          --
                            ------------   ------------  ----------
  Total liabilities.......   714,254,913    568,452,507   2,511,379
                            ------------   ------------  ----------
Commitments and contingen-
 cies
Stockholders' equity:
 Preferred stock, $0.1 par
  value;
  10 million shares
  authorized; none issued
  or outstanding at
  September 30, 1996
  (unaudited) and at
  December 31, 1995 and
  1994....................           --             --          --
 Common stock, $.01 par
  value;
  50 million shares
  authorized; 6,767,500
  shares issued and
  outstanding at September
  30, 1996 (unaudited),
  and 4,250,000 and no
  shares issued and
  outstanding at
  December 31, 1995 and
  1994, respectively......        67,675         42,500         --
 Additional paid-in capi-
  tal.....................    81,947,386     44,970,544         --
 Contributed capital......           --             --      357,558
 Investment securities
  valuation allowance.....    (1,107,995)       (92,663)        --
 Cumulative dividends de-
  clared..................    (7,429,100)           --          --
 Retained earnings........     7,709,080        315,443   6,495,697
                            ------------   ------------  ----------
  Total stockholders' eq-
   uity...................    81,187,046     45,235,824   6,853,255
                            ------------   ------------  ----------
                            $795,441,959   $613,688,331  $9,364,634
                            ============   ============  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
 
                                      F-3
<PAGE>
 

            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                          FOR THE NINE MONTHS    FOR THE YEAR ENDED DECEMBER
                          ENDED SEPTEMBER 30,                31,
                         ---------------------- -------------------------------
                            1996        1995       1995      1994       1993
                         ----------- ---------- ---------- --------  ----------
                              (UNAUDITED)
<S>                      <C>         <C>        <C>        <C>       <C>        
Revenues:
  Interest income....... $44,338,108 $  784,787 $2,851,216 $292,665  $  766,875
  Equity in net income
   of ICI Funding
   Corporation..........     718,595  1,118,238  1,489,276  531,688   4,191,701
  Fee income............     606,543    165,851    243,155   82,742     320,173
                         ----------- ---------- ---------- --------  ----------
                          45,663,246  2,068,876  4,583,647  907,095   5,278,749
                         ----------- ---------- ---------- --------  ----------
Expenses:
  Interest on CMO
   borrowings and
   reverse repurchase
   agreements...........  31,371,946        --   1,116,287      --          --
  Interest on borrowings
   from SPTL............         --     423,418    598,421  126,524     334,220
  Provision for loan
   losses...............   3,738,684    387,505    487,505   95,374         --
  Advisory fee..........   2,157,105        --      37,888      --          --
  General and adminis-
   trative
   expense..............     266,201     40,484     64,249   67,396      69,253
  Professional services.     433,016     12,915     54,336   14,460      17,590
  Personnel expense.....     302,657     66,678     90,737  143,308     110,269
                         ----------- ---------- ---------- --------  ----------
                          38,269,609    931,000  2,449,423  447,062     531,332
                         ----------- ---------- ---------- --------  ----------
Income before income
 taxes..................   7,393,637  1,137,876  2,134,224  460,033   4,747,417
Income taxes (benefit)..         --       8,248     75,849  (30,095)    233,401
                         ----------- ---------- ---------- --------  ----------
  Net income............   7,393,637 $1,129,628 $2,058,375 $490,128  $4,514,016
                         =========== ========== ========== ========  ==========
  Net income per share.. $      1.40        --  $      .07      --          --
                         =========== ========== ========== ========  ==========
</TABLE>
          See accompanying notes to consolidated financial statements.
 
                                      F-4
<PAGE>
 

            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                          NUMBER OF          ADDITIONAL              SECURITIES   CUMULATIVE                    TOTAL
                           SHARES    COMMON    PAID-IN   CONTRIBUTED  VALUATION    DIVIDENDS    RETAINED    STOCKHOLDERS'
                         OUTSTANDING  STOCK    CAPITAL     CAPITAL    ALLOWANCE    DECLARED     EARNINGS       EQUITY
                         ----------- ------- ----------- ----------- -----------  -----------  -----------  -------------
<S>                      <C>         <C>     <C>         <C>         <C>          <C>          <C>          <C>
Balance, December 31,
 1992..................         --   $   --  $       --   $     --   $       --   $       --   $ 1,491,553   $ 1,491,553
Net income, 1993.......         --       --          --         --           --           --     4,514,016     4,514,016
                          ---------  ------- -----------  ---------  -----------  -----------  -----------   -----------
Balance, December 31,
 1993..................         --       --          --         --           --           --     6,005,569     6,005,569
Capital contribution...         --       --          --     357,558          --           --           --        357,558
Net income, 1994.......         --       --          --         --           --           --       490,128       490,128
                          ---------  ------- -----------  ---------  -----------  -----------  -----------   -----------
Balance, December 31,
 1994..................         --       --          --     357,558          --           --     6,495,697     6,853,255
Contribution
 Transaction...........     500,000    5,000     514,750   (357,558)         --           --    (8,238,629)   (8,076,437)
Net proceeds, from
 initial
 public offering.......   3,750,000   37,500  44,455,794        --           --           --           --     44,493,294
Net income, 1995.......         --       --          --         --           --           --     2,058,375     2,058,375
Securities valuation
 allowance, net........         --       --          --         --       (92,663)         --           --        (92,663)
                          ---------  ------- -----------  ---------  -----------  -----------  -----------   -----------
Balance, December 31,
 1995..................   4,250,000   42,500  44,970,544        --       (92,663)         --       315,443    45,235,824
Cumulative dividends
 declared ($1.44 per
 share) (unaudited)....         --       --          --         --           --    (7,429,100)         --     (7,429,100)
Net proceeds from
 public stock offering
 (unaudited)...........   2,500,000   25,000  36,716,442        --           --           --           --     36,741,442
Sale of common stock
 (unaudited)...........      17,500      175     260,400        --           --           --           --        260,575
Net income, nine months
 ended September 30,
 1996 (unaudited)......         --       --          --         --           --           --     7,393,637     7,393,637
Change in securities
 valuation allowance
 (unaudited)...........         --       --          --         --    (1,015,332)         --           --     (1,015,332)
                          ---------  ------- -----------  ---------  -----------  -----------  -----------   -----------
Balance, September 30,
 1996 (unaudited)......   6,767,500  $67,675 $81,947,386  $     --   $(1,107,995) $(7,429,100) $ 7,709,080   $81,187,046
                          =========  ======= ===========  =========  ===========  ===========  ===========   ===========
</TABLE>

         See accompanying notes to consolidated financial statements. 


                                      F-5
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                            FOR THE NINE MONTHS ENDED
                                  SEPTEMBER 30,             FOR THE YEAR ENDED DECEMBER 31,
                            ---------------------------  ---------------------------------------
                                1996           1995          1995          1994         1993
                            -------------  ------------  -------------  -----------  -----------
                                   (UNAUDITED)
 <S>                        <C>            <C>           <C>            <C>          <C>
 Cash flows from operat-
  ing activities:
  Net income.............   $   7,393,637  $  1,129,628  $   2,058,375  $   490,128  $ 4,514,016
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in) operating
   activities:
  Equity in net income of
   ICI Funding
   Corporation...........        (718,595)   (1,118,238)    (1,489,276)    (531,688)  (4,191,701)
  Provision for loan
   losses................       3,738,684       387,505        487,505       95,374          --
  Net change in accrued
   interest on loans and
   investments...........      (5,341,231)      (56,686)    (1,701,133)       4,565       (9,701)
  Net change in other
   assets and
   liabilities...........         385,738           --         572,545          --           --
                            -------------  ------------  -------------  -----------  -----------
   Net cash provided by
    (used in) operating
    activities...........       5,458,233       342,209        (71,984)      58,379      312,614
                            -------------  ------------  -------------  -----------  -----------
 Cash flows from invest-
  ing activities:
  Change in CMO
   collateral............    (544,212,602)          --             --           --           --
  Change in finance
   receivables...........     399,594,184   (15,340,762)  (602,737,414)   5,015,658      886,512
  Change in mortgage
   loans held for
   investment............      (1,238,391)          --             --           --           --
  Purchases of investment
   securities available-
   for-sale..............     (31,579,238)          --     (17,470,901)         --           --
  Net decrease (increase)
   in lease payment
   receivables...........       8,440,644           --      (8,440,644)         --           --
  Contributions to ICIFC.      (8,127,900)          --        (495,000)         --           --
                            -------------  ------------  -------------  -----------  -----------
   Net cash provided by
    (used in) investing
    activities...........    (177,123,303)  (15,340,762)  (629,143,959)   5,015,658      886,512
                            -------------  ------------  -------------  -----------  -----------
 Cash flows from financ-
  ing activities:
  Proceeds from public
   stock offerings, net..      36,741,442           --      44,493,294          --           --
  Net change in
   borrowings from SPTL..             --     14,998,553     19,279,770   (5,074,037)  (1,199,126)
  Net change in reverse-
   repurchase agreements.    (376,598,544)          --     567,727,361          --           --
  Net change in CMO
   borrowings............     517,875,338           --             --           --           --
  Dividends paid.........      (3,910,000)          --             --           --           --
  Proceeds from sale of
   additional common
   shares................         260,575           --             --           --           --
                            -------------  ------------  -------------  -----------  -----------
   Net cash provided by
    (used in) financing
    activities...........     174,368,811    14,998,553    631,500,425   (5,074,037)  (1,199,126)
                            -------------  ------------  -------------  -----------  -----------
 Net change in cash and
  cash equivalents.......       2,703,741           --       2,284,482          --           --
 Cash and cash
  equivalents at
  beginning of period....       2,284,482           --             --           --           --
                            -------------  ------------  -------------  -----------  -----------
 Cash and cash
  equivalents at end of
  period.................   $   4,988,223  $        --   $   2,284,482  $       --   $       --
                            =============  ============  =============  ===========  ===========
 Supplementary informa-
  tion:
  Interest paid..........   $  31,346,716  $    423,418  $   1,714,708  $   126,524  $   334,220
  Income taxes paid
   (refunded)............             --            --             --       (30,095)     233,401
                            =============  ============  =============  ===========  ===========
 Non-cash transactions:
 Contribution Transaction
 on November 20, 1995:
 Net assets reverted to
 ICII and SPTL:
  Finance receivables....   $         --   $        --   $  22,353,236  $       --   $       --
  Investment in ICIFC....             --            --       7,973,245          --           --
  Accrued interest
   receivable............             --            --          60,855          --           --
  Borrowings from SPTL...             --            --      21,791,149          --           --
  Contributed capital....             --            --         357,558          --           --
  Retained earnings......             --            --       8,238,629          --           --
 Contribution by ICII of
 100% of the preferred
 stock
 of ICI Funding
 Corporation
 (representing
 a 99% economic
 interest)...............             --            --         519,750          --           --
 Unrealized losses on
  investment securities
  available-for-sale.....      (1,107,995)          --         (92,663)         --           --
 Accrued dividends.......       3,519,100           --             --           --           --
</TABLE>

         See accompanying notes to consolidated financial statements.
           
                                      F-6
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
               AND THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
 
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
 BUSINESS
 
  Imperial Credit Mortgage Holdings, Inc. and its wholly-owned subsidiaries,
Imperial Warehouse Lending Group (IWLG) and IMH Assets Corp. (IMH Assets),
(IMH or the Company) is a Maryland corporation formed on August 28, 1995 that
operates three businesses, two of which were formerly owned and operated by
Imperial Credit Industries, Inc. (ICII), a leading diversified financial
services company and mortgage bank. IMH intends to operate so as to qualify as
a real estate investment trust (REIT) under the requirements of the Internal
Revenue Code. The business objectives are discussed in the succeeding three
paragraphs.
 
  The Long-Term Investment Operations, a newly created business, invests
primarily in non-conforming residential mortgage loans and mortgage-backed
securities secured by or representing interests in such loans. The Long-Term
Investment Operations also invest, to a lesser extent, in second mortgages.
 
  The Conduit Operations, conducted in ICI Funding Corporation (ICIFC),
primarily purchases non-conforming mortgage loans and, to a lesser extent,
second mortgage loans from its network of third party correspondents and
subsequently securitizes or sells such loans to permanent investors. ICIFC, in
addition to its ongoing securitizations and sales to third party investors,
supports the Long-Term Investment Operations of the Company by supplying IMH
with non-conforming mortgage loans and securities backed by non-conforming
mortgage loans.
 
  The Warehouse Lending Operations provides short-term lines of credit to
ICIFC and other approved mortgage banks, most of which are correspondents of
ICIFC, to finance mortgage loans during the time from the closing of the loans
to their sale or other settlement with pre-approved investors.
 
 CONTRIBUTION TRANSACTION
 
  On November 20, 1995, the effective date of IMH's initial public offering
(Initial Public Offering), ICII contributed to ICIFC certain operating assets
and certain customer lists of ICII's mortgage conduit operations, including
all of ICII's mortgage conduit operations' commitments to purchase mortgage
loans, subject to rate locks from correspondents, in exchange for shares
representing 100% of the common stock and 100% of the non-voting preferred
stock of ICIFC. Simultaneously, on the effective date of the Initial Public
Offering, in exchange for 500,000 shares of IMH Common Stock, ICII (1)
contributed to IMH all of the outstanding non-voting preferred stock of ICIFC,
which represents 99% of the economic interest in ICIFC, (2) caused Southern
Pacific Thrift and Loan Association (SPTL), a wholly owned subsidiary of ICII,
to contribute to IMH certain operating assets and certain customer lists of
SPTL's warehouse lending division, and (3) executed an agreement not to
compete and a right of first refusal agreement, each having a term of two
years from the effective date of the Initial Public Offering. This
contribution is known as the "Contribution Transaction." All of the
outstanding shares of common stock of ICIFC were retained by ICII. Lastly, IMH
contributed all of the aforementioned operating assets of SPTL's warehouse
lending operations contributed to it by SPTL to IWLG in exchange for shares
representing 100% of the common stock of IWLG thereby forming it as a wholly
owned subsidiary. On the effective date of the Initial Public Offering, the
net tangible book value of the assets contributed pursuant to the Contribution
Transaction was $525,000. The assets contributed were recorded by IMH at the
net book value of SPTL and ICII. ICII and SPTL retained all other assets and
liabilities related to the contributed operations which consist of mortgage
servicing rights (MSRs), finance receivables and advances made by ICII and
SPTL to fund mortgage conduit loan acquisitions and to fund finance
receivables.
 
                                      F-7
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 BASIS OF FINANCIAL STATEMENT PRESENTATION
 
  Prior to the Contribution Transaction, the operations of IWLG are combined
with the Company in a manner similar to a "pooling-of-interests" and the
Company's investment in ICIFC is recorded using the equity method of
accounting, with the accompanying consolidated financial statements and notes
reflecting the historical operations of IWLG for those periods presented.
 
  The historical operations of IWLG, formerly a division of SPTL, have been
presented in the consolidated financial statements for the period January 1,
1995 to November 19, 1995 and for the years ended December 31, 1994 and 1993
as a stand-alone company. Certain adjustments, as described below, were made
to historical operations in order to provide fair presentation of the
financial operations of IWLG.
 
  The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and prevailing practices within the
financial services industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
 
  All material intercompany balances and transactions with IMH's consolidated
subsidiaries (IWLG and IMH Assets) have been eliminated in consolidation.
 
 CASH AND CASH EQUIVALENTS
 
  For purposes of the consolidated statements of cash flows, cash and cash
equivalents consists of cash and money market mutual funds. The Company
considers investments with maturities of three months or less at date of
acquisition to be cash equivalents.
 
 BORROWINGS FROM SPTL
 
  Historical operations of IWLG have been adjusted to reflect the funding of
net assets by SPTL. The adjustments are disclosed in the accompanying
consolidated balance sheets as "Borrowings from SPTL." These borrowings were
recorded at no more than 98% of total finance receivables which is the maximum
advance rate allowed under current ICII warehouse lines of credit.
Additionally, the historical operations of IWLG have been adjusted to reflect
the estimated interest charges on these borrowings. In order to reflect all
costs of doing business in the financial statements, interest charges have
been allocated to IWLG in the accompanying consolidated statements of
operations.
 
  The interest charges allocated are based upon estimated average borrowings
balances of IWLG and SPTL's average cost of funds, which were computed based
on a weighted average of SPTL borrowings. The average borrowings and interest
rates used to determine the interest on IWLG borrowings are as follows:
<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED
                                                              DECEMBER 31,
                                                          ----------------------
                         JANUARY 1,
                            1995
                           THROUGH    FOR THE NINE MONTHS
                          NOVEMBER    ENDED SEPTEMBER 30,
                          19, 1995           1995            1994        1993
                         -----------  ------------------- ----------  ----------
                                          (UNAUDITED)
<S>                      <C>          <C>                 <C>         <C>
Estimated average
 borrowings............. $11,258,467      $9,799,729      $3,045,442  $9,821,232
Interest rate...........        5.80%           5.76%           4.15%       3.40%
Interest allocation..... $   598,421      $  423,418      $  126,524  $  334,220
</TABLE>
 
 
                                      F-8
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 EQUITY
 
  Prior to the effective date of the offering, IWLG had no capital or retained
earnings recorded in its accounts. To properly reflect the historical
financial operations of IWLG, retained earnings were recorded as a result of
net income or loss from operations on an adjusted historical basis.
 
 INVESTMENT IN ICI FUNDING CORPORATION
 
  The Company records its investment in ICIFC on the equity method. ICII owns
all of the common stock of ICIFC and is entitled to 1% of the earnings or loss
of ICIFC. The Company is entitled to 99% of the earnings or losses of ICIFC
through its ownership of all of the non-voting preferred stock in ICIFC. ICIFC
is a mortgage loan conduit organization, which purchases mortgage loans and
subsequently securitizes or sells such loans to permanent investors, including
IMH (see note 16).
 
 INVESTMENT SECURITIES AVAILABLE-FOR-SALE
 
  The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standard No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires the Company to
classify investment and mortgage-backed securities as held-to-maturity,
available-for-sale, and/or trading securities. Held-to-maturity investment and
mortgage-backed securities are reported at amortized cost, available-for-sale
securities are reported at fair value with unrealized gains and losses, net of
related income taxes, as a separate component of stockholders' equity, and
trading securities are reported at fair value with unrealized gains and losses
reported in income. Discounts obtained on investment securities are amortized
to interest income over the estimated life of the investment securities using
the interest method.
   
  At September 30, 1996, the Company's investment securities available-for-
sale included $20.2 million of subordinated securities collateralized by
mortgages. In general, subordinated classes of a particular series of
securities bear all losses prior to the related senior classes. In connection
with ICIFC's REMIC securitizations of $645.9 million in issuance amount for
the nine months ended September 30, 1996, IMH has retained $29.6 million of
securities as regular interests. At September 30, 1996, such regular interests
included $113,000 of "principal-only" and $19.8 million of "interest-only"
securities. Such retained securities or investments may subject the Company to
credit, interest rate and/or prepayment risks.     
 
  The Company's investment securities are held as available-for-sale, reported
at fair value with unrealized gains and losses reported as a separate
component of stockholders' equity. As the Company qualifies as a REIT and no
income taxes are paid, the unrealized gains and losses are reported gross in
stockholders' equity.
 
 MORTGAGE LOANS HELD FOR INVESTMENT AND COLLATERALIZED MORTGAGE OBLIGATIONS
(CMO) COLLATERAL
 
  The Company purchases certain non-conforming mortgage loans to be held as
long-term investments or as collateral for CMOs. Mortgage loans held for
investment and CMO collateral are recorded at cost at the date of purchase.
Mortgage loans held for investment and CMO collateral include various types of
adjustable-rate loans secured by mortgages on single-family residential real
estate properties and fixed-rate loans secured by second trust deeds on
single-family residential real estate properties, accounting for 92.2%
(unaudited) and 7.8% (unaudited), respectively, of the long-term investment
portfolio and CMO collateral at September 30, 1996. At December 31, 1995 the
Company had no mortgage loans held for investment. Approximately 56.8%
(unaudited) of the mortgage loans held for investment and CMO collateral at
September 30, 1996 were collateralized by properties located in California.
Premiums and discounts and the market valuation related to these loans are
amortized over their estimated lives using the interest method. Loans are
continually evaluated for collectibility and, if appropriate, the loan may be
placed on nonaccrual status, generally 90 days past due, and previously
 
                                      F-9
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
accrued interest reversed from income. As of September 30, 1996, there were 46
(unaudited) loans on nonaccrual status with a principal balance of $6.1
million (unaudited).
 
  The Company maintains an allowance for losses on mortgage loans held for
investment and CMO collateral at an amount which it believes is sufficient to
provide adequate protection against future losses in the mortgage loans
portfolio. The allowance for losses is determined primarily on the basis of
management's judgment of net loss potential, including specific allowances for
known impaired loans and other factors such as changes in the nature and
volume of the portfolio, value of the collateral and current economic
conditions that may affect the borrowers' ability to pay. A provision is
recorded for all loans or portions thereof deemed to be uncollectible thereby
increasing the allowance for loan losses.
 
 COLLATERALIZED MORTGAGE OBLIGATIONS
 
  The Company issues CMOs secured primarily by non-conforming mortgage loans
as a means of financing its long-term investment operations. For accounting
and tax purposes, the mortgage loans financed through the issuance of CMOs are
treated as assets of the Company and the CMOs are treated as debt of the
Company. Each issue of CMOs is fully payable from the principal and interest
payments on the underlying mortgage loans collateralizing such debt and any
investment income on such collateral. The maturity of each class of CMO is
directly affected by the rate of principal prepayments on the related CMO
collateral. Each CMO series is also subject to redemption according to
specific terms of the respective indentures. As a result, the actual maturity
of any class of a CMO series is likely to occur earlier than the stated
maturities of the underlying mortgage loans. The weighted average maturity of
the CMO collateral ranges from 14 to 29 years (unaudited). The CMOs are
structured as one month LIBOR "floaters" with interest payable monthly at
LIBOR plus 0.32% to 0.50%, currently increasing to LIBOR plus 1.00% to 1.32%
after seven years (unaudited).
 
The long-term investment operations earns the net interest spread between the
interest income on the mortgage loans and the interest and other expenses
associated with the CMO debt. The net interest spread may be directly impacted
by the levels of prepayment of the underlying mortgage loans and, to the
extent CMO classes have variable rates of interest, may be affected by changes
in short-term interest rates. As of September 30, 1996, the Company had
outstanding CMO debt of $517.9 million (unaudited) and corresponding mortgage
loans held as collateral of $544.2 million (unaudited).
 
  The Company maintains an allowance for losses on loans held as collateral
for CMOs at an amount which it believes is sufficient to provide adequate
protection against losses in the portfolio. The allowance for losses is
determined primarily on the basis of management's judgment of net loss
potential, including specific allowances for known impaired loans. All
accounts or portions thereof deemed to be uncollectible are written-off to the
allowance for loan losses.
 
 FINANCE RECEIVABLES
 
  Finance receivables represent transactions with customers, including ICIFC,
involving predominantly residential real estate lending. As a warehouse
lender, the Company is a secured creditor of the mortgage bankers and brokers
to which it extends credit and is subject to the risks inherent in that
status, including the risk of borrower default and bankruptcy. Any claim of
the Company as a secured lender in a bankruptcy proceeding may be subject to
adjustment and delay.
 
  The Company maintains an allowance for losses on financing receivables at an
amount which it believes is sufficient to provide adequate protection against
future losses in the portfolio. The allowance for losses is determined
primarily on the basis of management's judgment of net loss potential,
including specific allowances for known impaired loans. A provision is
recorded for all accounts or portions thereof deemed to be uncollectible.
 
                                     F-10
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Finance receivables are stated at the principal balance outstanding.
Interest income is recorded on the accrual basis in accordance with the terms
of the loans. Finance receivables are continually evaluated for collectibility
and, if appropriate, the receivable is placed on non accrual status, generally
90 days past due. Future collections of interest income are included in
interest income or applied to the loan balance based on an assessment of the
likelihood that the loans will be repaid.
 
 INCOME TAXES
 
  IWLG did not record income taxes in its historical operations. The
accompanying consolidated financial statements reflect income taxes (benefit)
for IWLG as if it had been a separate subsidiary of SPTL for the period
January 1, 1995 through November 19, 1995 and the years ended December 31,
1994 and 1993. As a separate subsidiary of SPTL, IWLG would file a
consolidated Federal income tax return and a combined California franchise tax
return with ICII. ICII's income tax allocation policy for financial statement
purposes is to allocate income tax provision or benefit based on income (loss)
before income taxes (benefit) of each entity within its consolidated group,
adjusted for nontaxable or nondeductible items of income and expense. ICIFC's
taxable income is included in ICII's Federal and State income tax returns.
Post-Contribution, ICIFC will file its own tax return.
 
  Effective January 1, 1993, IWLG adopted SFAS 109, resulting in no material
adjustment to income. Prior to the Contribution Transaction, deferred tax
assets and liabilities were recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
 
  IMH intends to operate so as to qualify as a real estate investment trust
(REIT) under the requirements of the Internal Revenue Code (the Code).
Requirements for qualification as a REIT include various restrictions on
ownership of IMH's stock, requirements concerning distribution of taxable
income and certain restrictions on the nature of assets and sources of income.
A REIT must distribute at least 95% of its taxable income to its stockholders,
the distribution of which 85% must be within the taxable year and the
remaining balance may extend until timely filing of its tax return in its
subsequent taxable year. Qualifying distributions of its taxable income are
deductible by a REIT in computing its taxable income. Although IMH did not
make any distributions during the calendar year of 1995, it can nevertheless
retain its qualified REIT status and eliminate its 1995 taxable income by
making a qualified distribution after the close of the 1995 taxable year in
accordance with the provisions of section 858 of the Code. IMH intends to and
has taken steps to satisfy the requirements of section 858 of the Code and to
elect to apply amounts out of its first distributions in calendar year 1995 to
effectively distribute 100% of its 1995 taxable income. The 1995 provision for
income taxes for IMH in the consolidated financial statements pertains to the
period prior to the Contribution Transaction. If in any tax year IMH should
not qualify as a REIT, it would be taxed as a corporation and distributions to
the stockholders would not be deductible in computing taxable income. If IMH
were to fail to qualify as a REIT in any tax year, it would not be permitted
to qualify for that year and the succeeding four years.
 
 ADVERTISING
 
  The Company accounts for its advertising costs as non-direct response
advertising. Accordingly, advertising costs are expensed as incurred.
 
                                     F-11
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 NET INCOME PER SHARE
 
  Net income per share is computed on the basis of the weighted average number
of shares and common equivalent shares outstanding for the period.
 
  Net income per share for nine months ended September 30, 1996 and for the
period from November 20, 1995 through December 31, 1995, as if all stock
options and ICII ownership interest in IMH were outstanding for the nine
months ended September 30, 1996 and after the Offering for the period from
November 20, 1995 through December 31, 1995 is:
<TABLE>
<CAPTION>
                                                          NINE      NOVEMBER 20,
                                                      MONTHS ENDED  1995 THROUGH
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1996          1995
                                                      ------------- ------------
                                                       (UNAUDITED)
   <S>                                                <C>           <C>
   Weighted average shares outstanding...............   5,289,483     4,284,015
                                                       ==========    ==========
   Net income........................................  $7,393,637    $  315,443
                                                       ==========    ==========
   Net income per share..............................  $     1.40    $     0.07
                                                       ==========    ==========
</TABLE>
 
  The 1995, 1994 and 1993 net income per share is not presented as the
information is not meaningful.
 
  There were no dividends paid in 1995. An $0.08 cash dividend was paid on
January 30, 1996 (unaudited). A $0.39 cash dividend was paid on April 30, 1996
(unaudited). A $0.45 cash dividend was paid on July 2, 1996 (unaudited). A
$0.52 cash dividend was declared on September 17, 1996 for stockholders of
record on September 30, 1996, and paid on October 15, 1996 (unaudited). A
special dividend payable to stockholders of record on November 15, 1996 was
authorized by the Board of Directors of the Company (unaudited). The amount of
the special dividend will be determined by the Board of Directors prior to the
record date and calculated to distribute excess taxable income not previously
distributed by IMH as dividends, in order to comply with REIT qualification
requirements (unaudited).
 
 RECLASSIFICATIONS
 
  Certain items in prior periods have been reclassified to conform to the
current presentation.
 
 MORTGAGE SERVICING RIGHTS
 
  On May 12, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS 122"), as an amendment to SFAS 65. The Company elected to adopt
this standard for the year ended December 31, 1995. The impact on the Company
from adoption of SFAS 122 is only to the extent mortgage servicing rights are
recognized by ICIFC.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
  In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. SFAS 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from
 
                                     F-12
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
transfers that are secured borrowings. SFAS 125 requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practicable. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the
assets sold, if any, and retained interest, if any, based on their relative
fair values at the date of the transfers. SFAS 125 includes specific
provisions to deal with servicing assets or liabilities. SFAS 125 will be
effective for transactions occurring after December 31, 1996. It is not
anticipated that the financial impact of this statement will have a material
effect on the Company.
 
  In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS 123 permits the Company to choose either the fair
value based method from SFAS 123 or intrinsic value based method of accounting
for its stock-based compensation arrangements under APB Opinion 25. SFAS 123
requires pro forma disclosures of net income and income per share computed as
if the fair value based method had been applied in financial statements of
companies that continue to follow current practice in accounting for such
arrangements under Opinion 25. SFAS 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans.
SFAS 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, i.e., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights. The statement also specifies the accounting for
transactions in which a company issues stock options or other equity
instruments for services provided by nonemployees or to acquire goods or
services from outside suppliers or vendors. The recognition provision of SFAS
123 for companies choosing to adopt the new fair value based method of
accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years
that begin after December 15, 1995. The disclosure provisions of SFAS 123 are
effective for fiscal years beginning after December 15, 1995; however,
disclosure of the pro forma net income and income per share, as if the fair
value method of accounting for stock-based compensation had been elected, is
required for all awards granted in fiscal years beginning after December 31,
1994. The Company will continue to account for stock-based compensation under
APB Opinion 25 and, as a result, SFAS 123 will not have a material impact on
the Company's operations.
 
2. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
 
  The Company's mortgage-backed securities are secured by conventional, one-
to-four family mortgage loans. The yield to maturity on each security depends
on, among other things, the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations), the pass-through rate
and interest rate fluctuations. The Company's interest in these securities is
subordinated so that, in the event of a loss, payments to senior certificate
holders will be made before the Company receives its payments.
 
                                     F-13
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The amortized cost and estimated fair value of mortgage-backed securities
available-for-sale are summarized as follows:
 
<TABLE>
<CAPTION>
                                              SEPTEMBER 30, 1996
                                                 (UNAUDITED)
                                -----------------------------------------------
                                              GROSS       GROSS
                                 AMORTIZED  UNREALIZED UNREALIZED    ESTIMATED
                                   COST        GAIN       LOSS      FAIR VALUE
                                ----------- ---------- -----------  -----------
<S>                             <C>         <C>        <C>          <C>
Donaldson, Lufkin and Jenrette
Series:
  1995-Q6, Class B-1..........  $ 6,562,326  $   --    $  (165,587) $ 6,396,739
  1995-4, Class B-1...........    3,883,024      --       (397,112)   3,485,912
  1995-4, Class B-2...........    1,694,702      --       (569,905)   1,124,797
                                -----------  -------   -----------  -----------
                                 12,140,052      --     (1,132,604)  11,007,448
Salomon Brothers Series VII
95-A, Class B-2...............    5,332,402   53,603           --     5,386,005
Bear Stearns Mortgage
 Securities, Inc. Series:
  1996-1 X1...................    7,818,903      --        (92,141)   7,726,762
  1996-3 X....................    6,246,829      --       (121,203)   6,125,626
  1996-4 X....................    5,985,632      --            --     5,985,632
  1996-4 PO...................      113,034      --            --       113,034
  1996-3, Class B-4...........    1,068,561      --        (41,725)   1,026,836
  1996-3, Class B-5...........      581,606      --        (80,022)     501,584
  1996-3, Class B-6...........      446,039      --        (94,597)     351,442
  1996-4, Class B-4...........    1,228,345      --            --     1,228,345
  1996-4, Class B-5...........      320,142      --            --       320,142
  1996-4, Class B-6...........      426,831      --            --       426,831
                                -----------  -------   -----------  -----------
                                 24,235,922      --       (429,688)  23,806,234
                                -----------  -------   -----------  -----------
                                $41,708,376  $53,603   $(1,562,292) $40,199,687
                                ===========  =======   ===========  ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                 DECEMBER 31, 1995
                                   ---------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED  ESTIMATED
                                      COST        GAIN       LOSS    FAIR VALUE
                                   ----------- ---------- ---------- -----------
<S>                                <C>         <C>        <C>        <C>
Donaldson, Lufkin and Jenrette
 Series:
  1995-Q6, Class B-1.............  $ 6,585,440       --    $(36,496) $ 6,548,944
  1995-4, Class B-1..............    3,793,799       --      (7,962)   3,785,837
  1995-4, Class B-2..............    1,641,124       --      (4,321)   1,636,803
Salomon Brothers Series VII 95-A,
 Class B-2.......................    5,450,538       --     (43,884)   5,406,654
                                   -----------  --------   --------  -----------
                                   $17,470,901       --    $(92,663) $17,378,238
                                   ===========  ========   ========  ===========
 
  The Company purchased two of its mortgage-backed securities from SPTL in
December 1995 (see note 10).
 
  The Company holds other securities available-for-sale with estimated fair
values as follows:
 
<CAPTION>
                                                SEPTEMBER 30, 1996
                                                    (UNAUDITED)
                                   ---------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED  ESTIMATED
                                      COST        GAIN       LOSS    FAIR VALUE
                                   ----------- ---------- ---------- -----------
<S>                                <C>         <C>        <C>        <C>
Imperial Credit Industries, Inc.
 9 3/4% Senior Notes.............  $ 4,536,459  $400,694   $    --   $ 4,937,153
Franchise Loan Receivables Trust
 1995-B..........................    2,805,304       --         --     2,805,304
                                   -----------  --------   --------  -----------
                                   $ 7,341,763  $400,694   $    --   $ 7,742,457
                                   ===========  ========   ========  ===========
</TABLE>
 
  The equity in the Franchise Loans Receivables Trust 1995-B was purchased
from ICII in the first quarter of 1996 (unaudited).
 
                                     F-14
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
3. CMO COLLATERAL
 
  CMO collateral consists of the following:
<TABLE>
<CAPTION>
                                                              AT SEPTEMBER 30,
                                                                    1996
                                                              ----------------
                                                                (UNAUDITED)
      <S>                                                     <C>
      Loans secured primarily by single-family residential
       real estate properties................................   $528,324,124
      Premiums on loans......................................     13,983,671
      Securitization expenses related to issuance of CMOs....      1,904,807
                                                                ------------
                                                                $544,212,602
                                                                ============
</TABLE>
 
4. FINANCE RECEIVABLES
 
  The Company's finance receivables represent warehouse lines of credit with
mortgage banking companies collateralized by mortgage loans on single family
residences. Because of the concentration of mortgage loans underlying the
Company's finance receivables located in California, which was 63% at December
31, 1995, a significant decline in regional economic conditions, or some other
regional catastrophe, could result in mortgage banking companies being unable
to sell mortgage loans and the Company suffering losses on their warehouse
lines or in fewer mortgage loans available for warehouse lending by the
Company and ultimately a decline in interest income and fee income.
 
  Finance receivables consist of the following:
 
<TABLE>
<CAPTION>
                                                            AT DECEMBER 31,
                                       AT SEPTEMBER 30, -----------------------
                                             1996           1995        1994
                                       ---------------- ------------ ----------
                                         (UNAUDITED)
   <S>                                 <C>              <C>          <C>
   Due from ICIFC.....................   $168,989,682   $550,290,862 $      --
   Due from other mortgage banking
    companies.........................     14,437,247     32,730,251  3,119,814
                                         ------------   ------------ ----------
                                         $183,426,929   $583,021,113 $3,119,814
                                         ============   ============ ==========
</TABLE>
 
  The Company earns interest rates at prime (8.5% at December 31, 1995) on
warehouse lines to ICIFC and prime to prime plus two percent on its warehouse
lines to other mortgage banking companies. These lines have maturities which
range from on demand to one year and are generally collateralized by mortgages
on single family residences.
 
5. ALLOWANCE FOR LOAN LOSSES
 
  Activity in the allowance for loan losses was as follows:
 
<TABLE>
<CAPTION>
                                                               FOR THE YEAR
                                      FOR THE NINE MONTHS     ENDED DECEMBER
                                      ENDED SEPTEMBER 30,           31,
                                      ---------------------  ------------------
                                         1996       1995       1995      1994
                                      ----------  ---------  ---------  -------
                                                   (UNAUDITED)
   <S>                                <C>         <C>        <C>        <C>
   Balance, beginning of period...... $  100,000  $  95,374  $  95,374  $   --
   Provision for loan losses.........  3,738,684    387,505    487,505   95,374
   Charge-offs.......................    (60,714)  (482,879)  (482,879)     --
   Recoveries........................     60,714        --         --       --
                                      ----------  ---------  ---------  -------
   Balance, end of period............ $3,838,684  $     --   $ 100,000  $95,374
                                      ==========  =========  =========  =======
</TABLE>
 
  The charge-offs for 1995 reflected in the above table were recorded prior to
the effective date of the Initial Public Offering and are related to one
borrower.
 
  There was no allowance for loan losses in 1993.
 
                                     F-15
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. REVERSE-REPURCHASE AGREEMENTS
 
  IMH enters into reverse-repurchase agreements with major brokerage firms for
its mortgage warehouse lending operations and to fund the purchase of mortgage
loans and mortgage-backed securities. Mortgage loans underlying certain of the
agreements are delivered to the dealers that arrange the transactions. The
following tables present information regarding reverse-repurchase agreements:
 
<TABLE>
<CAPTION>
                                          SEPTEMBER 30, 1996 (UNAUDITED)
                                    ------------------------------------------
                                      REVERSE
                                     REPURCHASE   UNDERLYING
   UNDERLYING COLLATERAL             LIABILITY    COLLATERAL   MATURITY DATE
   ---------------------            ------------ ------------ ----------------
   <S>                              <C>          <C>          <C>
   PaineWebber:
     Mortgage loans................ $153,153,206 $157,094,236 October 10, 1996
   Morgan Stanley:
     Mortgage loans................   27,785,851   28,105,758 October 30, 1996
   Merrill Lynch:
     Mortgage loans................    1,013,289    5,218,176 October 30, 1996
   Donaldson, Lufkin and Jenrette
    (DLJ):
     MBS DLJ 1995-Q6 B-1...........    4,157,435    5,174,609 October 15, 1996
   Bear Stearns:
     MBS Bear Stearns 1996-1 X1....    5,019,036    7,726,762 October 9, 1996
                                    ------------ ------------
         Total..................... $191,128,817 $203,319,541
                                    ============ ============
</TABLE>
 
<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1995
                                      ------------------------------------------
                                        REVERSE     UNDERLYING
   UNDERLYING COLLATERAL               REPURCHASE   COLLATERAL   MATURITY DATE
   ---------------------              ------------ ------------ ----------------
   <S>                                <C>          <C>          <C>
   PaineWebber:
     Mortgage loans.................. $239,628,464 $251,423,244 January 8, 1996
   Merrill Lynch:
     Mortgage loans..................  323,180,005  332,660,022 January 25, 1996
   Salomon Brothers:
     MBS Salomon 1995-A..............    4,918,892    5,406,654 January 5, 1996
                                      ------------ ------------
         Total....................... $567,727,361 $589,489,920
                                      ============ ============
</TABLE>
 
  There were no reverse-repurchase agreements at December 31, 1994.
 
  At September 30, 1996 and December 31, 1995, reverse-repurchase agreements
includes accrued interest payable of $688,783 (unaudited) and $1,075,511,
respectively.
 
  The following table presents certain information on reverse-repurchase
agreements, excluding accrued interest payable:
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1996           1995
                                                    -------------  ------------
                                                     (UNAUDITED)
   <S>                                              <C>            <C>
   Maximum Month-End Outstanding Balance........... $613,315,164   $566,651,850
   Average Balance Outstanding.....................  384,530,792     16,343,476
   Weighted Average Rate...........................         5.91%          6.83%
</TABLE>
 
  The maximum amount available under the reverse-repurchase agreement at
September 30, 1996 and December 31, 1995 is $750 million (unaudited) and $623
million, respectively.
 
                                      F-16
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. INCOME TAXES
 
  The Company, as a qualified REIT for the period from November 20, 1995 to
December 31, 1995 is not subject to income taxes. The Company's income taxes
(benefit) for the periods it was not a REIT follow:
 
<TABLE>
<CAPTION>
                                                      1995     1994      1993
                                                     ------- --------  --------
   <S>                                               <C>     <C>       <C>
   Current:
     Federal........................................ $36,951 $(10,775) $177,135
     State..........................................   2,054    2,555    57,978
                                                     ------- --------  --------
       Total current................................  39,005   (8,220)  235,113
                                                     ------- --------  --------
   Deferred:
     Federal........................................  26,257  (11,602)   (1,712)
     State..........................................  10,587  (10,273)      --
                                                     ------- --------  --------
       Total deferred...............................  36,844  (21,875)   (1,712)
                                                     ------- --------  --------
   Total income taxes (benefit)..................... $75,849 $(30,095) $233,401
                                                     ======= ========  ========
</TABLE>
 
  The income tax provision prior to the formation of IMH as a REIT differs
from statutory Federal corporate income tax rate primarily due to state income
taxes and equity in earnings of ICIFC.
 
  Deferred income taxes arise from differences in the bases of assets and
liabilities for tax and financial reporting purposes. The following table
shows the primary components of the IWLG's net deferred taxes at December 31,
1994:
 
<TABLE>
      <S>                                                               <C>
      Deferred tax assets:
        Allowance for finance receivable losses........................ $40,057
        Other..........................................................   3,597
                                                                        -------
          Total........................................................  43,654
        Valuation allowance............................................     --
                                                                        -------
        Deferred tax assets, net of valuation allowance................  43,654
      Deferred tax liabilities:
        State taxes....................................................  (2,701)
                                                                        -------
          Total........................................................  (2,701)
                                                                        -------
      Net deferred tax assets (included in borrowings from SPTL)....... $40,953
                                                                        =======
</TABLE>
 
  The Company had no deferred taxes at December 31, 1995.
 
  In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled reversal
of deferred tax liabilities and available tax carrybacks in making this
assessment. Based upon the schedule of reversals and available tax carrybacks,
management believes it is more likely than not the Company will realize the
benefits of the deferred tax assets. All deferred tax balances were
transferred to ICII on November 20, 1995 as part of the Contribution
Transaction.
 
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The following disclosure of the estimated fair value of financial
instruments as of December 31, 1995 is made in accordance with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures About Fair Value of Financial Instruments, and SFAS No. 119,
Disclosures About Derivative
 
                                     F-17
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Financial Instruments and Fair Value of Financial Instruments. The estimated
fair value amounts have been determined by IMH using available market
information and appropriate valuation methodologies; however, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts IMH could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1995
                                                            -------------------
                                                            CARRYING ESTIMATED
                                                             AMOUNT  FAIR VALUE
                                                            -------- ----------
                                                              (IN THOUSANDS)
   <S>                                                      <C>      <C>
   Assets:
     Cash and cash equivalents............................. $  2,284  $  2,284
     Investment securities available-for-sale..............   17,378    17,378
     Finance receivables...................................  582,921   582,921
     Lease payment receivables held for sale...............    8,441     8,441
   Liabilities:
     Reverse-repurchase agreements, net of accrued
      interest.............................................  566,652   566,652
     Off balance-sheet unrealized gains (losses):
       Short-term commitments to extend credit.............      --        --
</TABLE>
 
  The fair value estimates as of December 31, 1995 are based on pertinent
information available to management as of that date. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
 
  The following describes the methods and assumptions used by IMH in
estimating fair values.
 
 CASH AND CASH EQUIVALENTS
 
  The carrying amount for cash and cash equivalents approximates fair value
because these instruments are demand deposits and money market mutual funds
and do not present unanticipated interest rate or credit concerns.
 
 INVESTMENT SECURITIES AVAILABLE FOR SALE
 
  The fair value of investment securities is estimated based on quoted market
prices from dealers and brokers for similar types of mortgage-backed
securities.
 
 FINANCE RECEIVABLES
 
  The fair value approximates the carrying amounts because of the short-term
nature of the assets and do not present unanticipated interest rate or credit
concerns.
 
 REVERSE-REPURCHASE AGREEMENTS
 
  Fair values approximate the carrying amounts because of the short-term
maturity of the liabilities and do not present unanticipated interest rate or
credit concerns.
 
                                     F-18
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 SHORT-TERM COMMITMENTS TO EXTEND CREDIT
 
  There are no commitment fees associated with IMH's lines of credit extended
under the warehouse lending program. Accordingly, these commitments do not
have an estimated fair value.
 
9. EMPLOYEE BENEFIT PLANS
 
 PROFIT SHARING AND 401(K) PLAN
 
  Prior to July 1, 1993, Imperial Bancorp (the primary shareholder of ICII)
had a noncontributory profit sharing plan in which employees of the Company
were eligible to participate at year end if they had been employed for at
least 1,000 hours during the year. For 1993, there was no contribution charged
to operations.
 
  Imperial Bancorp also had a 401(k) plan in which all employees of the
Company had been eligible to participate. On July 1, 1993, ICII terminated its
participation in Imperial Bancorp's 401(k) and profit sharing plans,
establishing its own 401(k) plan (the Plan) in which employees of the Company
were eligible to participate. On September 30, 1993, Imperial Bancorp
transferred all plan assets to ICII.
 
  Under ICII's 401(k) plan, employees of the Company may contribute up to 14%
of their salaries. The Company will match 50% of the first 4% of employee
contributions. An additional Company contribution may be made at the
discretion of the Company.
 
  The Company does not have its own 401(K) or profit sharing plan. As such,
employees of the Company participate in ICII's 401(K) plan. The Company's
matching and discretionary contributions were not significant for any period
presented.
 
10. RELATED PARTY TRANSACTIONS
 
 RELATED PARTY COST ALLOCATIONS AND CHARGES
 
  Prior to the Contribution Transaction, IWLG was allocated various costs from
SPTL and charged for certain ICII services. The costs of these services were
not directly attributable to IWLG and primarily include general corporate
overhead such as human resources, data processing, professional services,
telephone and other communications, and general and administrative expense
including a fixed asset user charge. These expenses were allocated or charged
based typically on a per employee basis, which management believes is
reasonable. Total related party allocations and charges for the period January
1, 1995 through November 19, 1995, and for the years ended December 31, 1994,
and 1993 were $46,865, $56,128 and $52,739, respectively.
 
  Interest income recorded by the Company, related to finance receivables due
from ICIFC, was $25.6 million (unaudited) and $1.3 million for the nine months
ended September 30, 1996 (unaudited) and for the year ended December 31, 1995.
 
  On the effective date of the Initial Public Offering, IMH entered into a
services agreement with ICII under which ICII provides various services to the
Company, including data processing, human resource administration, general
ledger accounts, check processing, remittance processing and payment of
accounts payable. ICII charges fees for each of the services based upon usage.
As part of the services provided, ICII provides IWLG with insurance coverage
and self insurance programs, including health insurance. The charge to IWLG
for coverage is based upon a pro rata portion of the costs to ICII for its
various policies. Total charges for the nine months ended September 30, 1996
and for the period November 20, 1995 through December 31, 1995 were
$51,000 (unaudited) and $4,462, respectively.
 
                                     F-19
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 CASH
 
  Prior to the Contribution Transaction, IWLG had no cash accounts. All
operations were funded directly by SPTL. Adjustments were made to IWLG's
financial statements to reflect these fundings as borrowings from SPTL. IWLG
did not reflect any accounts receivable or payable on its balance sheet prior
to the Contribution Transaction because all transactions of IWLG either
increased or decreased its borrowings from SPTL.
 
 PURCHASE OF MORTGAGE-BACKED SECURITIES
 
  On December 29, 1995, the Company purchased, at market value, from SPTL, DLJ
Mortgage Acceptance Corp. Pass-Through Certificates Series 1995-4, Class B-1
and Class B-2 issued August 29, 1995. These certificates consist primarily of
a pool of certain conventional, 11th district cost of funds adjustable rate,
one-to-four family, first lien mortgage loans, with terms to maturity of not
more than 30 years. The mortgage loans underlying the certificates were
originated or acquired by ICII. All of the mortgage loans were serviced by
ICII in its capacity as master servicer at December 31, 1995. ICII sold the
servicing related to these mortgage loans to an unrelated third party during
the first quarter of 1996 (unaudited).
 
  The Company purchased the Class B-1 certificates having a current
certificate principal balance of$4.8 million and the Class B-2 certificates
having a current certificate principal balance of $2.3 million for a price of
78.54 and 70.01, respectively, equating to a discount of $1,028,923 and
$697,166, respectively.
 
 PURCHASE OF BULK MORTGAGE LOANS (UNAUDITED)
 
  On March 29, 1996, IMH purchased from ICIFC bulk mortgage loan packages of
30-year fully amortizing six-month adjustable LIBOR and 15-year fixed rate
second trust deed mortgages having a principal balance of $276.3 million and
$34.7 million with premiums paid of $2.8 million and $1.2 million,
respectively. Servicing rights on all mortgage loans were retained by ICIFC.
 
  On August 28, 1996, IMH purchased from ICIFC bulk mortgage loan packages of
30-year fully amortizing six-month and two-year adjustable LIBOR and 15-year
fixed rate second trust deed mortgages having a principal balance of $255.8
million and $9.6 million with premiums of $10.9 million and $408,000,
respectively.
 
 PURCHASE OF SUBORDINATED LEASE RECEIVABLES
 
  On December 29, 1995, IMH purchased a subordinated interest in a lease
receivable securitization from Imperial Business Credit, Inc. (IBC) a wholly-
owned subsidiary of ICII. The lease receivables underlying the security were
originated by IBC. IMH purchased the subordinated lease receivable at the
present value of estimated cash flows based on a discount rate of 12%
amounting to a purchase price of $8,440,644. On May 31, 1996 (unaudited), IMH
sold the subordinated interest back to IBC at no gain or loss.
 
 NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT
 
  Pursuant to the Non-Compete Agreement, ICII and any entity of which ICII
owns more than 25% of the voting securities (a 25% entity) may not compete
with the Company's Warehouse Lending Operations and may not establish a
network of third party correspondent loan originators or another end-investor
in non-conforming mortgage loans. The agreement expires two years from the
effective date of the Initial Public Offering.
 
  Pursuant to the Right of First Refusal Agreement, ICII granted ICIFC a right
of first refusal to purchase all non-conforming mortgage loans that ICII or
any 25% entity originates or acquires and subsequently offers for sale and
ICIFC granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all non-conforming mortgage loans that ICIFC acquires and
subsequently offers for sale. In addition, for a period of the
 
                                     F-20
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
earlier of nine months from the effective date of the Initial Public Offering
and that date upon which IMH accumulates $300 million of mortgage loans and/or
mortgage-backed securities, neither ICII nor any 25% entity will be permitted
to purchase any non-conforming bulk loan package having a principal balance of
$50 million or more without first allowing ICIFC the opportunity to bid to
purchase said package. Additional related party transactions are described
elsewhere in the financial statement footnotes.
 
11. COMMITMENTS AND CONTINGENCIES
 
 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
  IMH is a party to financial instruments with off-balance-sheet risk in the
normal course of business. Such instruments include short-term commitments to
extend credit to borrowers under warehouse lines of credit which involve
elements of credit risk. In addition, IMH is exposed to credit loss in the
event of nonperformance by the counterparties to the various agreements
associated with loan purchases. However, IMH does not anticipate
nonperformance by such borrowers or counterparties. Unless noted otherwise,
IMH does not require collateral or other security to support such commitments.
 
  The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
contract or notional amounts of forward contracts do not represent exposure to
credit loss. The Company controls the credit risk of its forward contracts
through credit approvals, limits and monitoring procedures.
 
 LEASE COMMITMENTS
 
  Minimum rental commitments under a noncancelable premises operating sub-
lease with ICII at December 31, 1995 were as follows:
 
<TABLE>
      <S>                                                             <C>
      1996........................................................... $  163,200
      1997...........................................................    170,200
      1998...........................................................    171,600
      1999...........................................................    174,400
      2000...........................................................    180,000
      Thereafter.....................................................    180,000
                                                                      ----------
        Total........................................................ $1,039,400
                                                                      ==========
</TABLE>
 
  The sublease is for the period from December 1, 1995 through January 1, 2002
and calls for rent to be paid based on what ICII pays according to its master
lease agreement.
 
  Rent expense for the nine months ended September 30, 1996 and 1995 and for
the years ended December 31, 1995, 1994, and 1993, was $7,248 (unaudited),
none (unaudited), $9,405, and $19,611, and $24,504, respectively. Rent expense
is allocated to ICIFC based on number of employees.
 
 LOAN COMMITMENTS
 
  IWLG's warehouse lending program provides secured short-term revolving
financing to small- and medium-size mortgage originators and ICIFC to finance
mortgage loans from the closing of the loans until sold to permanent
investors. As of September 30, 1996, the Company had extended 16 (unaudited)
committed lines of credit in the aggregate principal amount of approximately
$673.5 million (unaudited), of which $183.4 million (unaudited) was
outstanding.
 
                                     F-21
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 LEGAL PROCEEDINGS
 
  ComUnity National Asset Corporation, a Maryland corporation v. Thomas O.
  ------------------------------------------------------------------------
Markel, Jr., an individual, Homemac Mortgage Bankers, a business association
- ------------
of unknown form; Homemac Corporation, a California corporation; Homemac
Finance Corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
and DOES 1 through 100, inclusive, Orange County Superior Court Case No.
761786.
 
  On April 1, 1996, ComUnity National Asset Corporation (ComUnity) filed a
lawsuit in Orange County Superior Court against Thomas O. Markel, Jr., several
Homemac entities, and IMH. The complaint seeks damages for statutory and
common law misappropriation of trade secrets, restitution for unfair
competition, damages for negligence and conversion.
 
  ComUnity seeks damages in an unspecified amount, but in no event less than
$200,000, alleging that said amount is not less than the amount spent and/or
obligations incurred by ComUnity in setting up its business and organizational
plan to become a REIT dealing primarily in B and C grade mortgage loans and to
take ComUnity public in an initial public offering, together with punitive
damages. ComUnity is also seeking attorneys' fees and costs. ComUnity alleges
that IMH wrongfully received consideration in the form of, among other things,
reduced expenses and legal fees, salary, wages, stock options, and other forms
of consideration arising out of the commercial exploitation of ComUnity's
confidential information, and that ComUnity is also entitled to an order of
restitution compelling IMH and other defendants to pay to ComUnity all profits
from the commerical exploitation of information allegedly received from
ComUnity. The Company believes that the complaint is without merit and intends
to vigorously defend the action.
 
  Michele Perrin, an individual doing business as Perrin and Associates vs.
  -------------------------------------------------------------------------
Thomas O. Markel, an individual; H. Wayne Snavely, an individual; Homemac
- -----------------
Mortgage Bankers, a business association of unknown form; Homemac Corporation,
a California corporation; Homemac Finance Corporation, a California
corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
Imperial Credit Industries, Inc., a California corporation and DOES 1 through
100, Orange County Superior Court Case No. 768878.
 
  On September 12, 1996, Michele Perrin (Perrin) filed the aforementioned
complaint seeking damages for breach of contract, breach of fiduciary duty,
breach of the implied covenant of good faith and fair dealing, negligence,
trade secret misappropriation, unfair competition and conversion.
 
  Perrin seeks damages in an unspecified amount, but in no event less than
$200,000, plus punitive and exemplary damages, attorneys' fees and costs, and
the profits from the commercial exploitation of Perrin's confidential and
proprietary business and organizational plans to be a real estate investment
trust dealing primary in sub-A mortgage loans and its plan for going to market
with an initial public offering to be disgorged from defendants and paid over
to Perrin by way of an order for restitution. The Company believes that the
complaint is without merit and intends to vigorously defend the action.
 
  The Company is involved in additional litigation arising in the normal
course of business of which management believes based in part upon the advice
of legal counsel, will not have a material effect on the Company.
 
12. MANAGEMENT CONTRACT
 
  On the effective date of the Offering, the Company entered into an agreement
with Imperial Credit Advisors, Inc. (ICAI) for an initial term of one year, to
provide specified management services to the Company. These services include
the purchase, financing, servicing and administration of mortgage loans and
mortgage loan securities.
 
                                     F-22
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  As manager of the Company, ICAI receives a per annum base management fee
payable monthly in arrears of an amount equal to (1) 3/8 of 1% of Gross
Mortgage Assets of IMH comprised of other than Agency Certificates, conforming
mortgage loans or mortgage-backed securities secured by or representing
interests in conforming mortgage loans, plus (2) 1/8 of 1% of the remainder of
Gross Mortgage Assets of IMH plus (3) 1/5 of 1% of the average daily asset
balance of the outstanding amounts under IWLG's warehouse lending facilities.
The Management Agreement expires on January 31, 1997 and the Company currently
intends to negotiate a renewal of the Management Agreement containing more
favorable terms than the current Management Agreement. While there can be no
assurances that such negotiations will be successfully completed. A base
management fee of $1.4 million (unaudited) and $37,888 was accrued for the
nine months ended September 30, 1996 and for the year ended December 31, 1995,
respectively.
 
  As incentive compensation, ICAI will be entitled to receive for each fiscal
quarter, an amount equal to 25% of the net income of the Company, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the daily average Ten Year
U.S. Treasury Rate plus 2%. The Company's incentive compensation calculation
will be made quarterly in arrears before any income distributions are made to
stockholders for the corresponding period. Incentive compensation of $749,000
(unaudited) was accrued for the nine months ended September 30, 1996. No
incentive compensation was accrued for the period November 20, 1995 through
December 31, 1995. Pursuant to the Management Agreement, the Company will
reserve up to 1/5 of the Company's 25% Incentive Payment for distribution as
bonuses to its employees in amounts to be determined by the Company's Board of
Directors. Such payment is made in lieu of payment of a like amount to the
Manager under the Management Agreement. For the nine months ended September
30, 1996, the Company accrued $187,000 pursuant to this provision of the
Management Agreement.
 
  Concurrent with the management agreement, ICAI entered into a submanagement
agreement with ICII for ICII to perform such management services for the
Company as ICAI deems necessary.
 
13. STOCK OPTION PLAN/EXECUTIVE COMPENSATION
 
  In August, 1995 the Company adopted a Stock Option, Deferred Stock and
Restricted Stock Plan (the Stock Option Plan) which provides for the grant of
qualified incentive stock options (ISOs), options not qualified (NQSOs) and
deferred stock, restricted stock, stock appreciation, dividend equivalent
rights and limited stock appreciation rights awards (Awards). The Stock Option
Plan is administered by a committee of directors appointed by the Board of
Directors and is composed solely of "disinterested persons." ISOs may be
granted to the officers and key employees of the Company. NQSOs and Awards may
be granted to the directors, officers and key employees of the Company or any
of its subsidiaries, to the directors, officers and key employees of ICIFC. At
September 30, 1996, shares reserved for issuance pursuant to the Company's
Stock Option Plan were 800,000 (unaudited). The Company increased the Stock
Option Plan's shares available by 400,000 shares pursuant to a vote taken at
the stockholders meeting in July 1996 (unaudited).
 
  The exercise price for any NQSO or ISO granted under the Stock Option Plan
may not be less than 100% (or 110% in the case of ISOs granted to an employee
who is deemed to own in excess of 10% of the outstanding Common Stock) of the
fair market value of the shares of Common Stock at the time the NQSO or ISO is
granted.
 
  Under the Stock Option Plan, the Company may make loans available to stock
option holders in connection with the exercise of stock options granted under
the Stock Option Plan. If shares of Common Stock are pledged as collateral for
such indebtedness, the shares may be returned to the Company in satisfaction
of the indebtedness. If returned, the shares become available for issuance in
connection with future stock options and Awards under the Stock Option Plan.
 
                                     F-23
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Unless previously terminated by the Board of Directors, the Stock Option
Plan will terminate in August of 2005. Options granted under the Stock Option
Plan will become exercisable as directed by a committee of the Board of
Directors at the time of grant.
 
  A summary of stock options outstanding at December 31, 1995 follows:
 
<TABLE>
<CAPTION>
                                            NUMBER OF EXERCISE
                                             SHARES    PRICE     DATE OF GRANT
                                            --------- -------- -----------------
   <S>                                      <C>       <C>      <C>
   Officers of IMH.........................  220,000  $11.25    August 30, 1995
   Officers of ICAI........................   55,000   11.25    August 30, 1995
   Unaffiliated directors..................   45,000   13.00   November 20, 1995
                                             -------
                                             320,000
                                             =======
</TABLE>
 
  No shares were exercisable at September 30, 1996 (unaudited) or December 31,
1995.
 
  The 220,000 and 55,000 stock options become exercisable three years from the
date of grant and expire seven years from the date they become exercisable.
The 45,000 stock options become exercisable on the first anniversary of the
date of grant and expire nine years from the date they become exercisable.
   
  On January 31, 1996 (unaudited), 25,000 of the 220,000 stock options were
canceled. On October 7, 1996 (unaudited), 115,500 stock options were issued to
officers and employees of ICIFC at an exercise price of $20.625 per share. The
114,500 stock options become exercisable at a rate of 1/3 per year on the
anniversary of the date of grant and expire three years from the date they
were granted (unaudited).     
 
14. STOCKHOLDERS' EQUITY
   
  On November 20, 1995, the Company completed its initial public offering of
3,750,000 shares of common stock. The Company raised $44.5 million in the
initial public offering, net of $4.3 of offering expenses. On June 18, 1996
(unaudited), the Company completed a subsequent stock offering of 2,500,000
(unaudited) shares of common stock. The Company raised $36.7 million
(unaudited) in the subsequent stock offering, net of $2.7 million (unaudited)
of offering expenses. In July 1996 (unaudited), the Company issued 17,500
shares in connection with the over allotment provision of the subsequent
offering. The Company intends to distribute 95% or more of its net taxable
income (which does not necessarily equal net income as calculated in
accordance with GAAP) to its common stockholders each year so as to comply
with the REIT provisions of the Internal Revenue Code. Holders of the common
stock are entitled to such dividends as the Company's Board of Directors, in
its discretion, may declare out of funds available. In the event of
liquidation of the Company, holders of common stock are entitled to receive,
pro rata, all of the assets of the Company available for distribution. Holders
of the common stock have no conversion or preemptive or other subscription
rights and there are no redemption or sinking fund provisions applicable to
the common stock. At September 30, 1996, and December 31, 1995, 50 million
(unaudited) and 50 million shares of common stock were authorized 6,767,500
(unaudited) and 4,250,000 shares were issued and outstanding, respectively.
    
  The Company is authorized to issue shares of preferred stock designated in
one or more classes or series. The preferred stock may be issued from time to
time with such designations, rights and preferences as shall be determined by
the Board of Directors. The preferred stock, if issued, may have a preference
on dividend payments which could affect the ability of the Company to make
dividend distributions to the common stockholders. As of December 31, 1995, 10
million shares of preferred stock are authorized and no shares have been
issued or are outstanding.
 
                                     F-24
<PAGE>
 
           IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
15. SUBSEQUENT EVENTS (UNAUDITED)
 
  On September 17, 1996, the Board of Directors declared a $0.52 cash
dividend, all to be taxable as ordinary income, to be paid on October 15, 1996
to stockholders of record on September 30, 1996.
 
  A special dividend payable to stockholders of record on November 15, 1996
was authorized by the Board of Directors of the Company. The amount of the
special dividend will be determined by the Board of Directors prior to the
record date and calculated to distribute excess taxable income not previously
distributed by IMH as dividends, in order to comply with REIT qualification
requirements.
 
16. ICI FUNDING CORPORATION
 
  The following condensed financial information summarizes the financial
condition, results of operations and cash flows of ICI Funding Corporation:
 
                                BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                        SEPTEMBER 30, -------------------------
                                            1996          1995         1994
                                        ------------- ------------  -----------
                                         (UNAUDITED)
<S>                                     <C>           <C>           <C>
                ASSETS
Cash................................... $  4,979,354  $  2,184,344  $       --
Mortgage loans held for sale, net......  171,704,117   544,274,962          --
Accrued interest receivable............      549,341     2,984,867          --
Due from affiliates....................      425,368     2,541,743          --
Mortgage servicing rights..............    7,536,745           --    11,453,240
Premises and equipment, net............      555,632       516,250      643,971
Other assets...........................      393,909       129,205          --
                                        ------------  ------------  -----------
                                        $186,144,466  $552,631,371  $12,097,211
                                        ============  ============  ===========
 LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG................... $168,989,682  $550,290,862  $       --
Borrowings from ICII...................          --            --     5,698,162
Accrued interest expense...............    2,514,202     1,348,424          --
Other liabilities......................    4,160,317       117,500          --
Due to affiliate.......................      669,826           --           --
                                        ------------  ------------  -----------
Total liabilities......................  176,334,027   551,756,786    5,698,162
                                        ------------  ------------  -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock........................    9,142,650     1,014,750          --
Common stock...........................       92,350        10,250          --
Contributed capital....................          --            --       361,170
Retained earnings......................      575,439      (150,415)   6,037,879
                                        ------------  ------------  -----------
Total shareholders' equity.............    9,810,439       874,585    6,399,049
                                        ------------  ------------  -----------
                                        $186,144,466  $552,631,371  $12,097,211
                                        ============  ============  ===========
</TABLE>
 
                                     F-25
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
                            STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                           NINE MONTHS ENDED
                             SEPTEMBER 30,          FOR THE YEAR ENDED DECEMBER 31,
                         -----------------------  -------------------------------------
                            1996         1995        1995         1994         1993
                         -----------  ----------  -----------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>          <C>         <C>          <C>          <C>
Revenues:
  Interest income....... $26,535,398  $      --   $ 1,249,000  $       --   $       --
  Gain on sale of loans.   5,555,034   2,695,011    4,135,373    2,291,143    5,859,378
  Loan servicing income.     622,245   4,196,474    5,158,812    4,042,798    1,377,247
  Gain on sale of
   servicing rights.....         --      369,703      369,703    4,188,282    5,332,026
                         -----------  ----------  -----------  -----------  -----------
                          32,712,677   7,261,188   10,912,888   10,522,223   12,568,651
                         -----------  ----------  -----------  -----------  -----------
Expenses:
  Interest on borrowings
   from IWLG............  25,557,309         --     1,348,424          --           --
  General and
   administrative and
   other................   4,875,661   2,836,900    3,662,080    6,332,479    4,507,534
  Provision for loan
   losses...............     728,091         --           --       655,294      175,000
  Amortization of
   mortgage servicing
   rights...............     285,624   2,069,913    2,892,341    2,070,387      459,233
  Interest on borrowings
   from ICII............         --      406,905      436,668      538,100      126,814
                         -----------  ----------  -----------  -----------  -----------
                          31,446,685   5,313,718    8,339,513    9,596,260    5,268,581
                         -----------  ----------  -----------  -----------  -----------
Income before income
 taxes..................   1,265,992   1,947,470    2,573,375      925,963    7,300,070
Income taxes............    (540,138)   (817,937)  (1,069,056)    (388,904)  (3,066,029)
                         -----------  ----------  -----------  -----------  -----------
  Net income............ $   725,854  $1,129,533  $ 1,504,319  $   537,059  $ 4,234,041
                         ===========  ==========  ===========  ===========  ===========
</TABLE>
 
 
                                      F-26
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                            FOR THE NINE MONTHS
                            ENDED SEPTEMBER 30,         FOR THE YEAR ENDED DECEMBER 31,
                         --------------------------  ----------------------------------------
                             1996          1995          1995          1994          1993
                         -------------  -----------  -------------  -----------  ------------
                                (UNAUDITED)
<S>                      <C>            <C>          <C>            <C>          <C>
Cash flows from
 operating activities:
  Net income............ $     725,854  $ 1,129,533  $   1,504,319  $   537,059  $  4,234,041
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in)
   operating activities:
   Provision for loan
    losses..............       728,091          --             --       655,294       175,000
   Depreciation and
    amortization........       378,631    2,188,946      2,911,752    2,219,262       518,789
   Gain on sale of
    servicing rights....           --      (369,703)      (369,703)  (4,188,282)   (5,332,026)
  Net change in mortgage
   loans held for sale..   371,842,754          --    (544,274,962)         --            --
  Net change in accrued
   interest
   receivable...........     2,435,526          --      (2,984,867)         --            --
  Net change in other
   assets and
   liabilities..........     6,564,314          --      (2,553,448)         --            --
  Net change in accrued
   interest expense.....     1,165,778          --       1,348,424          --            --
                         -------------  -----------  -------------  -----------  ------------
  Net cash provided by
   (used in) operating
   activities...........   383,840,948    2,948,776   (544,418,485)    (776,667)     (404,196)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 investing activities:
  Proceeds from sale of
   servicing rights.....           --     1,250,092      1,250,092    8,996,662     7,757,268
  Purchase of servicing
   rights...............    (7,822,369)  (3,233,215)    (3,865,605)  (8,781,244)  (12,435,238)
  Purchases of premises
   and equipment........      (132,389)         --             --      (433,199)     (419,203)
  Advances on loans held
   for investment.......           --           --             --      (408,054)     (284,780)
                         -------------  -----------  -------------  -----------  ------------
   Net cash used in
    investing
    activities..........    (7,954,758)  (1,983,123)    (2,615,513)    (625,835)   (5,381,953)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 financing activities:
  Net change in
   borrowings from ICII.           --      (965,653)    (1,572,520)   1,041,332     5,786,149
  Net change in
   borrowings from IWLG.  (381,301,180)         --     550,290,862          --            --
  Capital contributions.     8,210,000          --         500,000      361,170           --
                         -------------  -----------  -------------  -----------  ------------
   Net cash (used in)
    provided by
    financing
    activities..........  (373,091,180)    (965,653)   549,218,342    1,402,502     5,786,149
                         -------------  -----------  -------------  -----------  ------------
Net change in cash......     2,795,010          --       2,184,344          --            --
Cash at beginning of
 period.................     2,184,344          --             --           --            --
                         -------------  -----------  -------------  -----------  ------------
Cash at end of period... $   4,979,354  $       --   $   2,184,344  $       --   $        --
                         =============  ===========  =============  ===========  ============
Supplementary
 information:
  Interest paid......... $  24,391,531  $   406,905  $   1,785,092  $   538,100  $    126,814
  Taxes paid............       540,140          --       1,069,056      388,904     3,066,029
                         =============  ===========  =============  ===========  ============
Non-cash transactions:
  Contribution
   Transaction on
   November 20, 1995 net
   assets reverted to
   ICII:
   Premises and
    equipment........... $         --   $       --   $     498,486  $       --   $        --
   Mortgage servicing
    rights..............           --           --      11,680,939          --            --
   Borrowings from ICII.           --           --       4,125,642          --            --
   Contributed capital..           --           --         361,170          --            --
   Retained earnings....           --           --       7,692,613          --            --
</TABLE>
 
 
                                      F-27
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
ICI Funding Corporation:
 
We have audited the accompanying balance sheets of ICI Funding Corporation as
of December 31, 1995 and 1994, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICI Funding Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995
in conformity with generally accepted accounting principles.
 
As discussed in note 1 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights" for the year ended December 31, 1995.
 
                                          KPMG Peat Marwick LLP
 
Orange County, California
January 25, 1996
 
                                     F-28
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                        SEPTEMBER 30, -------------------------
                                            1996          1995         1994
                                        ------------- ------------  -----------
                                         (UNAUDITED)
<S>                                     <C>           <C>           <C>
                ASSETS
Cash................................... $  4,979,354  $  2,184,344  $       --
Mortgage loans held for sale, net......  171,704,117   544,274,962          --
Accrued interest receivable............      549,341     2,984,867          --
Due from affiliates....................      425,368     2,541,743          --
Mortgage servicing rights..............    7,536,745           --    11,453,240
Premises and equipment, net............      555,632       516,250      643,971
Other assets...........................      393,909       129,205          --
                                        ------------  ------------  -----------
                                        $186,144,466  $552,631,371  $12,097,211
                                        ============  ============  ===========
 LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG................... $168,989,682  $550,290,862  $       --
Borrowings from ICII...................          --            --     5,698,162
Accrued interest expense...............    2,514,202     1,348,424
Deferred revenue.......................    2,415,204           --           --
Other liabilities......................    1,745,113       117,500          --
Due to affiliate.......................      669,826           --           --
                                        ------------  ------------  -----------
  Total liabilities....................  176,334,027   551,756,786    5,698,162
                                        ------------  ------------  -----------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value; 10,000
   shares authorized; 10,000 shares
   issued and outstanding at September
   30, 1996 (unaudited) and at December
   31, 1995 and none issued and
   outstanding at December 31, 1994....    9,142,650     1,014,750          --
  Common stock, no par value; 10,000
   shares authorized; 10,000 shares
   issued and outstanding at September
   30, 1996 (unaudited) and at December
   31, 1995 and none issued and
   outstanding at December 31, 1994....       92,350        10,250          --
  Contributed capital..................          --            --       361,170
  Retained earnings (accumulated
   deficit)............................      575,439      (150,415)   6,037,879
                                        ------------  ------------  -----------
    Total shareholders' equity.........    9,810,439       874,585    6,399,049
                                        ------------  ------------  -----------
                                        $186,144,466  $552,631,371  $12,097,211
                                        ============  ============  ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-29
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                          FOR THE NINE MONTHS
                          ENDED SEPTEMBER 30,       FOR THE YEAR ENDED DECEMBER 31,
                         -----------------------  -------------------------------------
                            1996         1995        1995         1994         1993
                         -----------  ----------  -----------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>          <C>         <C>          <C>          <C>
Revenues:
  Interest income....... $26,535,398  $      --   $ 1,249,000  $       --   $       --
  Gain on sale of loans.   5,555,034   2,695,011    4,135,373    2,291,143    5,859,378
  Loan servicing income.     622,245   4,196,474    5,158,812    4,042,798    1,377,247
  Gain on sale of
   servicing rights.....         --      369,703      369,703    4,188,282    5,332,026
                         -----------  ----------  -----------  -----------  -----------
                          32,712,677   7,261,188   10,912,888   10,522,223   12,568,651
                         -----------  ----------  -----------  -----------  -----------
Expenses:
  Interest on borrowings
   from IWLG............  25,557,309         --     1,348,424          --           --
  Personnel expense.....   3,484,087   1,187,365    1,592,282    2,958,534    2,522,271
  Provision for loan
   losses...............     728,091         --           --       655,294      175,000
  General and
   administrative and
   other................     592,190   1,227,860    1,539,942    2,611,567    1,466,119
  Amortization of
   mortgage servicing
   rights...............     285,624   2,069,913    2,892,341    2,070,387      459,233
  Professional services.     370,271     159,203      203,593      118,979      146,947
  Occupancy expense.....     154,298     118,189      149,825      296,215      193,226
  Data processing
   expense..............     166,197      74,346       89,223      154,621       81,670
  Telephone and other
   communications.......     108,618      69,937       87,215      192,563       97,301
  Interest on borrowings
   from ICII............         --      406,905      436,668      538,100      126,814
                         -----------  ----------  -----------  -----------  -----------
                          31,446,685   5,313,718    8,339,513    9,596,260    5,268,581
                         -----------  ----------  -----------  -----------  -----------
Income before income
 taxes..................   1,265,992   1,947,470    2,573,375      925,963    7,300,070
Income taxes............    (540,138)   (817,937)  (1,069,056)    (388,904)  (3,066,029)
                         -----------  ----------  -----------  -----------  -----------
    Net income.......... $   725,854  $1,129,533  $ 1,504,319  $   537,059  $ 4,234,041
                         ===========  ==========  ===========  ===========  ===========
</TABLE>
 
 
                See accompanying notes to financial statements.
 
                                      F-30
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                              RETAINED
                                                                              EARNINGS        TOTAL
                         NUMBER OF PREFERRED  NUMBER OF COMMON  CONTRIBUTED (ACCUMULATED  SHAREHOLDERS'
                          SHARES     STOCK     SHARES    STOCK    CAPITAL     DEFICIT)       EQUITY
                         --------- ---------- --------- ------- ----------- ------------  -------------
<S>                      <C>       <C>        <C>       <C>     <C>         <C>           <C>
Balance, December 31,
 1992...................     --    $      --      --    $   --   $     --   $ 1,266,779    $ 1,266,779
Net income, 1993........     --           --      --        --         --     4,234,041      4,234,041
                          ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1993...................     --           --      --        --         --     5,500,820      5,500,820
Capital contributions,
 1994...................     --           --      --        --     361,170          --         361,170
Net income, 1994........     --           --      --        --         --       537,059        537,059
                          ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1994...................                                           361,170    6,037,879      6,399,049
Contribution
 Transaction............  10,000      519,750  10,000     5,250   (361,170)  (7,692,613)    (7,528,783)
Capital contribution,
 December 28, 1995......     --       495,000     --      5,000        --           --         500,000
Net income, 1995........     --           --      --        --         --     1,504,319      1,504,319
                          ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1995...................  10,000    1,014,750  10,000    10,250        --      (150,415)       874,585
Capital Contributions,
 1996 (unaudited).......     --     8,127,900     --     82,100        --           --       8,210,000
Net income, nine months
 ended September 30,
 1996 (unaudited).......     --           --      --        --         --       725,854        725,854
                          ------   ----------  ------   -------  ---------  -----------    -----------
Balance, September 30,
 1996 (unaudited).......  10,000   $9,142,650  10,000   $92,350  $     --   $   575,439    $ 9,810,439
                          ======   ==========  ======   =======  =========  ===========    ===========
</TABLE>
 
 
                See accompanying notes to financial statements.
 
                                      F-31
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                            FOR THE NINE MONTHS
                            ENDED SEPTEMBER 30,         FOR THE YEAR ENDED DECEMBER 31,
                         --------------------------  ----------------------------------------
                             1996          1995          1995          1994          1993
                         -------------  -----------  -------------  -----------  ------------
                                (UNAUDITED)
<S>                      <C>            <C>          <C>            <C>          <C>
Cash flows from
 operating activities:
  Net income............ $     725,854  $ 1,129,533  $   1,504,319  $   537,059  $  4,234,041
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in)
   operating activities:
   Provision for loan
    losses..............       728,091          --             --       655,294       175,000
   Depreciation and
    amortization........       378,631    2,188,946      2,911,752    2,219,262       518,789
   Gain on sale of
    servicing rights....           --      (369,703)      (369,703)  (4,188,282)   (5,332,026)
  Net change in mortgage
   loans held for sale..   371,842,754          --    (544,274,962)         --            --
  Net change in accrued
   interest
   receivable...........     2,435,526          --      (2,984,867)         --            --
  Net change in other
   assets and
   liabilities..........     6,564,314          --      (2,553,448)         --            --
  Net change in accrued
   interest expense.....     1,165,778          --       1,348,424          --            --
                         -------------  -----------  -------------  -----------  ------------
  Net cash provided by
   (used in) operating
   activities...........   383,840,948    2,948,776   (544,418,485)    (776,667)     (404,196)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 investing activities:
  Proceeds from sale of
   servicing rights.....           --     1,250,092      1,250,092    8,996,662     7,757,268
  Purchase of servicing
   rights...............    (7,822,369)  (3,233,215)    (3,865,605)  (8,781,244)  (12,435,238)
  Purchases of premises
   and equipment........      (132,389)         --             --      (433,199)     (419,203)
  Advances on loans held
   for investment.......           --           --             --      (408,054)     (284,780)
                         -------------  -----------  -------------  -----------  ------------
   Net cash used in
    investing
    activities..........    (7,954,758)  (1,983,123)    (2,615,513)    (625,835)   (5,381,953)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 financing activities:
  Net change in
   borrowings from ICII.           --      (965,653)    (1,572,520)   1,041,332     5,786,149
  Net change in
   borrowings from IWLG.  (381,301,180)         --     550,290,862          --            --
  Capital contributions.     8,210,000          --         500,000      361,170           --
                         -------------  -----------  -------------  -----------  ------------
   Net cash (used in)
    provided by
    financing
    activities..........  (373,091,180)    (965,653)   549,218,342    1,402,502     5,786,149
                         -------------  -----------  -------------  -----------  ------------
Net change in cash......     2,795,010          --       2,184,344          --            --
Cash at beginning of
 period.................     2,184,344          --             --           --            --
                         -------------  -----------  -------------  -----------  ------------
Cash at end of period... $   4,979,354  $       --   $   2,184,344  $       --   $        --
                         =============  ===========  =============  ===========  ============
Supplementary
 information:
  Interest paid......... $  24,391,531  $   406,905  $   1,785,092  $   538,100  $    126,814
  Taxes paid............       540,140          --       1,069,056      388,904     3,066,029
                         =============  ===========  =============  ===========  ============
Non-cash transactions:
  Contribution
   Transaction on
   November 20, 1995 net
   assets reverted to
   ICII:
   Premises and
    equipment........... $         --   $       --   $     498,486  $       --   $        --
   Mortgage servicing
    rights..............           --           --      11,680,939          --            --
   Borrowings from ICII.           --           --       4,125,642          --            --
   Contributed capital..           --           --         361,170          --            --
   Retained earnings....           --           --       7,692,613          --            --
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-32
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                         NOTES TO FINANCIAL STATEMENTS
 
 
   FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND THE
                   THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
 
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
  ICI Funding Corporation (ICIFC or the Company) is a wholly-owned subsidiary
of Imperial Credit Industries, Inc. (ICII). Historically, ICIFC was a division
or subsidiary of ICII that began operations in 1990. ICIFC is a mortgage loan
conduit organization which purchases mortgage loans from a network of third
party correspondent loan originators and subsequently securitizes or sells
such loans to permanent investors.
 
  The mortgage banking business is highly competitive. The Company competes
with a number of national, local and regional mortgage banking companies with
operations similar to those of the Company. In addition, competitors or
potential competitors include other types of financial services companies,
such as commercial banks, savings and loan associations and finance companies
who possess substantially greater financial, marketing, technical, personnel
and other resources than the Company.
 
  The financial statements have been prepared in conformity with generally
accepted accounting principles and prevailing practices within the mortgage
banking industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
 
 CONTRIBUTION TRANSACTION
 
  On November 20, 1995, the effective date of Imperial Credit Mortgage
Holdings' (IMH) initial public offering (Offering), ICII contributed to ICI
Funding Corporation (ICIFC) certain operating assets and certain customer
lists of ICII's mortgage conduit operations, including all of ICII's mortgage
conduit operations' commitments to purchase mortgage loans subject to rate
locks from correspondents, in exchange for shares representing 100% of the
common stock and 100% of the non-voting preferred stock of ICIFC.
Simultaneously, on the effective date of the Offering, in exchange for 500,000
shares of IMH Common Stock, ICII (1) contributed to IMH all of the outstanding
non-voting preferred stock of ICIFC, which represents 99% of the economic
interest in ICIFC, (2) caused Southern Pacific Thrift and Loan Association
(SPTL), a wholly owned subsidiary of ICII, to contribute to IMH certain
operating assets and certain customer lists of SPTL's warehouse lending
division, and (3) executed an agreement not to compete and a right of first
refusal agreement, each having a term of two years from the effective date of
the Offering. This contribution is known as the Contribution Transaction. All
of the outstanding shares of common stock of ICIFC were retained by ICII.
Lastly, IMH contributed all of the aforementioned operating assets of SPTL's
warehouse lending operations contributed to it by SPTL to Imperial Warehouse
Lending Group (IWLG) in exchange for shares representing 100% of the common
stock of IWLG. On the effective date of the Offering, the net tangible book
value of the assets contributed pursuant to the Contribution Transaction was
$525,000. The assets contributed were recorded by IMH at the net book value of
SPTL and ICII which were also estimated to be their fair value. ICII and SPTL
retained all other assets and liabilities related to the contributed
operations which consist of $11.7 million mortgage servicing rights (MSRs),
$22.4 million finance receivables and $26.6 million in advances made by ICII
and SPTL to fund mortgage conduit loan acquisitions and to fund finance
receivables, respectively.
 
BASIS OF FINANCIAL STATEMENT PRESENTATION
 
  The operations of ICIFC as a division or subsidiary of ICII prior to the
Contribution Transaction are presented in the financial statements as a stand-
alone company. Certain adjustments, as described below, were made to
historical operations in order to provide fair presentation of the financial
operations of ICIFC.
 
                                     F-33
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 GAIN ON SALE OF LOANS
 
  ICIFC recognizes gain or loss on the sale of loans when the sales
transaction settles and the risks and rewards of ownership are determined to
have passed to the purchasing party.
 
  Gain or loss on the sale of loans or securities to IMH are deferred and
amortized or accreted for gain or loss on sale over the estimated life of the
loans or securities using methods which approximate the interest method.
 
  ICII entered into an agreement with SPTL, its wholly owned subsidiary, under
which ICII provides loan solicitation and origination services, including
credit review, asset appraisal and documentation, pursuant to specific
underwriting criteria established by SPTL and consistent with the Federal
National Mortgage Association, Federal Home Loan Mortgage Company or other
investor guidelines. Final loan approval is given by SPTL prior to issuance of
any commitments. ICII also, under the agreement, may purchase mortgage loans
at book value from SPTL and sell them to ICII investors.
 
  Prior to the Contribution Transaction, as a division of ICII, ICIFC
historically, under this agreement, provided these solicitation and
origination services relating to its correspondent customers, and purchased
mortgage loans at book value from SPTL concurrent with sales to investors by
ICIFC. ICIFC received as compensation all origination fees and points
received, and recognized all gains or losses in connection with the sale of
loans.
 
  Prior to the Contribution Transaction, gain (loss) on sale of loans included
amounts allocated to ICIFC from ICII's forward contracts and other loan
hedging activities. Gains and losses from these activities were allocated to
ICIFC based on the ratio of ICIFC's principal amount of loan sales to ICII's
total principal amount of loans sold. For the period January 1, 1995 through
November 19, 1995 and for the years ended December 31, 1994, 1993, the total
gains or (losses) allocated were $2.6 million, $3.8 million and ($1.4)
million, respectively. ICII did not allocate outstanding commitments to ICIFC
at the end of any reporting period. After the date of the Contribution
Transaction, ICII discontinued these allocations for ICIFC, and ICIFC hedges
its own loans.
 
 BORROWINGS FROM ICII
 
  Historical operations of ICIFC, prior to the Contribution Transaction, have
been adjusted to reflect the funding of net assets by ICII. These adjustments
are disclosed in the accompanying financial statements as "Borrowings from
ICII." Because these borrowings would have been secured primarily by ICIFC's
mortgage servicing rights, its most significant assets, no more than 50% of
the mortgage servicing rights was reflected in the borrowings from ICII (based
on management's assumption that a lender would not lend more than 50% of an
asset of this type). Additionally, the historical operations of ICIFC have
been adjusted to reflect the estimated interest charges on these borrowings,
in the accompanying statements of operations.
 
  The interest charges allocated are based upon estimated average borrowing
balances and ICII's estimated cost of funds, computed based on a weighted
average of borrowings. Borrowing rates used were ICII's actual average cost of
funds. The average borrowings and interest rates used to determine the
interest on borrowings are as follows:
 
<TABLE>
<CAPTION>
                          JANUARY 1,                      FOR THE YEAR ENDED
                         1995 THROUGH                        DECEMBER 31,
                         NOVEMBER 20, NINE MONTHS ENDED  ----------------------
                             1995     SEPTEMBER 30, 1995    1994        1993
                         ------------ ------------------ ----------  ----------
                                         (UNAUDITED)
<S>                      <C>          <C>                <C>         <C>
Estimated average
 borrowings.............  $4,785,268      $5,277,628     $5,234,439  $1,806,470
Interest rate...........       10.28%          10.28%         10.28%       7.02%
Interest allocation.....  $  436,668      $  406,905     $  538,100  $  126,814
</TABLE>
 
                                     F-34
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 EQUITY
 
  Prior to the effective date of the Offering, ICIFC had no contributed
capital or retained earnings recorded in its accounts. To properly reflect the
historical financial operations of ICIFC, retained earnings were recorded as a
result of net income or loss from operations on an adjusted historical basis,
and contributed capital was recorded to fund ICIFC's assets in the amount of
the shortfall of borrowings plus retained earnings. Under this criteria,
allocated capital contributions were reflected in 1994 in the amount of
$361,170.
 
 INCOME TAXES
 
  ICIFC did not record income taxes in its historical operations. The
accompanying financial statements have been adjusted to reflect income taxes
for ICIFC as if it had been a separate company. As a subsidiary of ICII, ICIFC
would file a consolidated Federal income tax return and a combined California
franchise tax return with ICII. ICII's tax allocation policy for financial
statement purposes is to allocate income tax provision or benefit based on
income (loss) before income taxes (benefit) of each entity within its
consolidated group, adjusted for nontaxable or nondeductible items of income
and expense.
 
  Effective January 1, 1993, ICIFC adopted SFAS 109, resulting in no material
adjustment to income. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax base. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
 MORTGAGE LOANS HELD FOR SALE
 
  Mortgage loans held for sale are stated at the lower of cost or market in
the aggregate as determined by outstanding commitments from investors or
current investor yield requirements.
 
  Interest is recognized as revenue when earned according to the terms of the
mortgage loans and when, in the opinion of management, it is collectible.
Nonrefundable fees and direct costs associated with the origination or
purchase of loans are deferred and recognized when the loans are sold as gain
or loss on sale of mortgage loans.
 
 PREMISES AND EQUIPMENT
 
  Premises and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets
(three to seven years).
 
 FORWARD CONTRACTS AND COMMITMENTS
 
  In order to hedge against a change in market value of the loans it acquires,
ICIFC sells mortgage-backed securities through forward delivery contracts.
Income or loss on these contracts is recorded at the time of sale of the
related contracts or loans as a component of the gain or loss on sale of the
loans.
 
  If any party to the contracts noted above failed completely to perform,
ICIFC would be exposed to additional interest rate risk. The Company's
principal hedging activity consists of optional and mandatory commitments to
deliver closed mortgage loans to institutional investors, which do not require
any collateral deposits.
 
                                     F-35
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 OPTIONS
 
  Written options are stated at market value.
 
 SERVICING INCOME
 
  Servicing income is reported as earned, principally on a cash basis when the
majority of the service process is completed.
 
 MORTGAGE SERVICING RIGHTS
 
  Mortgage servicing rights (MSRs) represent the cost of acquiring the rights
to service mortgage loans. ICIFC amortizes MSRs in proportion to, and over the
period of, expected future net servicing income.
 
  On May 12, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65.
ICIFC elected to adopt this standard retroactive to January 1, 1995 which had
no impact on 1995 operations.
 
  SFAS No. 122 requires that a portion of the mortgage loan's cost be
allocated to the mortgage loan servicing right based on its fair value
relative to the loan as a whole. To determine the fair value of the servicing
rights created, ICIFC uses a valuation model that calculates the present value
of future net servicing revenues to determine the fair value of the servicing
rights. In using this valuation method, ICIFC incorporates assumptions that
market participants would use in estimating future net servicing income which
includes estimates of the cost of servicing, a discount rate, an inflation
rate, ancillary income per loan, a prepayment rate, and a default rate.
 
  ICIFC determines servicing value impairment by disaggregating ICIFC's
servicing portfolio into its predominant risk characteristics. ICIFC
determines those risk characteristics to be loan program type and interest
rate. Interest rates are stratified using 100 basis point increments. These
segments of the portfolio are then evaluated, using market prices under
comparable servicing sale contracts, when available, or alternatively using a
valuation model that calculates the present value of future net servicing
revenues using current market assumptions at the end of the quarter. The
calculated value is then compared to the capitalized recorded value of each
loan type and interest rate segment to determine if a valuation allowance is
required.
 
  ICIFC continuously evaluates its MSRs to determine if fair value is below
the carrying values of its MSRs. If the undiscounted projected net future
servicing income is less than the carrying amount of any individual mortgage
servicing portfolio, the portfolio may have to be reduced through a provision
recorded to increase the MSR valuation allowance in the period the fair value
declined below the MSR's carrying value. In preparing its evaluation, ICIFC
uses constant prepayment rates (CPR's) relating to interest rates on each
portfolio, loan types, and maturity dates to determine the appropriate amount
of amortization of the MSRs.
 
 SALES OF SERVICING RIGHTS
 
  ICIFC recognizes gain or loss on the sale of servicing rights when the sales
contract has been executed and the risks and rewards of ownership are
determined to have passed to the purchasing party. Gains and losses are
computed by deducting the basis in the servicing rights and any other costs
associated with the sale from the purchase price.
 
 ADVERTISING
 
  The Company accounts for its advertising costs as non-direct response
advertising. Accordingly, advertising costs are expensed as incurred.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
  In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and
 
                                     F-36
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered and derecognizes liabilities when
extinguished. SFAS 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interests in the transferred assets be measured by
allocating the previous carrying amount between the assets sold, if any, and
retained interest, if any, based on their relative fair values at the date of
the transfers. SFAS 125 includes specific provisions to deal with servicing
assets or liabilities. SFAS 125 will be effective for transactions occurring
after December 31, 1996. It is not anticipated that the financial impact of
this statement will have a material effect on the Company.
 
 RECLASSIFICATIONS
 
  Certain items in prior periods have been reclassified to conform to the
current presentation.
 
2. MORTGAGE LOANS HELD FOR SALE
 
  Mortgage loans held for sale consisted of the following:
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1996           1995
                                                    -------------  ------------
                                                     (UNAUDITED)
   <S>                                              <C>            <C>
   Mortgage loans held for sale.................... $167,983,894   $536,356,411
   Premium on loans................................    4,448,314      7,918,551
   Allowance for loan losses.......................     (728,091)           --
                                                    ------------   ------------
                                                    $171,704,117   $544,274,962
                                                    ============   ============
</TABLE>
 
  There were no mortgage loans held for sale as of December 31, 1994.
 
  The allowance for repurchases of $728,091 (unaudited) for the nine months
ended September 30, 1996 consisted only of a provision for losses charged to
expense. There were no charge-offs or recoveries during that period
(unaudited).
 
  Substantially all of the mortgage loans purchased by ICIFC are fixed-rate or
adjustable-rate non-conforming mortgage loans secured by first liens on
single-family residential properties. Because of the concentration of the
Company's mortgage loans located in California, which was 60% at December 31,
1995, a significant decline in regional economic conditions, or some other
regional catastrophe, could result in fewer mortgage loans available for
lending by the Company and ultimately a decline in interest income and fee
income. Moreover, such an event or events could affect the ability of
borrowers to payoff their loan with the Company.
 
3. PREMISES AND EQUIPMENT
 
  Premises and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                SEPTEMBER 30, -----------------
                                                    1996        1995     1994
                                                ------------- -------- --------
                                                 (UNAUDITED)
   <S>                                          <C>           <C>      <C>
   Premises and equipment......................   $648,639    $733,431 $852,402
   Less accumulated depreciation...............     93,007     217,181  208,431
                                                  --------    -------- --------
                                                  $555,632    $516,250 $643,971
                                                  ========    ======== ========
</TABLE>
 
                                     F-37
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
4. MORTGAGE SERVICING RIGHTS
 
  Changes in mortgage servicing rights were as follows:
 
<TABLE>
<CAPTION>
                             SEPTEMBER 30,                    DECEMBER 31,
                         -----------------------  --------------------------------------
                            1996        1995          1995         1994         1993
                         ----------  -----------  ------------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>         <C>          <C>           <C>          <C>
Beginning Balance....... $      --   $11,453,240  $ 11,453,240  $ 9,550,763  $       --
Additions...............  7,822,369    3,233,215     4,000,429    8,781,244   12,435,238
Sales of servicing
 rights.................        --      (880,389)     (880,389)  (4,808,380)  (2,425,242)
Amortization............   (285,624)  (2,069,913)   (2,892,341)  (2,070,387)    (459,233)
Transfer to ICII........        --           --    (11,680,939)         --           --
                         ----------  -----------  ------------  -----------  -----------
Ending balance.......... $7,536,745  $11,736,153  $        --   $11,453,240  $ 9,550,763
                         ==========  ===========  ============  ===========  ===========
</TABLE>
 
5. RELATED PARTY TRANSACTIONS
 
 RELATED PARTY COST ALLOCATIONS
 
  ICIFC was allocated various costs from ICII. The costs of these services
were not directly attributable to ICIFC and primarily include general
corporate overhead such as human resources, data processing, telephone and
other communications and general and administrative expense (including loan
administration costs, accounting, legal and insurance). These expenses were
allocated by ICII to all divisions based typically either on a per employee
basis, based on origination volume or an even allocation of total expense.
Management believes these methods of allocation are reasonable. Total
allocations of expense for the period January 1, 1995 through November 19,
1995, and for the years ended December 31, 1994 and 1993 were $222,361,
$460,638 and $406,421, respectively.
 
  On the effective date of the Initial Public Offering, ICIFC entered into a
services agreement with ICII under which ICII provides various services to
ICIFC, including data processing, human resource administration, general
ledger accounts, check processing, remittance processing and payment of
accounts payable. ICII charges fees for each of the services based upon usage.
As part of the services, ICII provides ICIFC with insurance coverage and self
insurance programs, including health insurance. The charge to ICIFC for
coverage is based upon a pro rata portion of the costs to ICII for its various
policies which amounted to $307,000 (unaudited) and $24,669 for the nine
months ended September 30, 1996 and the period November 20, 1995 through
December 31, 1995, respectively.
 
 SUB-SERVICING
 
  Prior to July 1996, ICII provided sub-servicing to ICIFC for a sub-servicing
fee of approximately $7.50 per loan per month, which management believes to be
a market rate. The sub-servicing fee offsets "Loan Servicing Income" in the
accompanying statements of operations of ICIFC and amounted to $335,188
(unaudited), $894,997 (unaudited), $1,100,259, $1,054,940 and $442,039 for the
nine months ended September 30, 1996 and 1995 (unaudited) and for the years
ended December 31, 1995, 1994 and 1993, respectively.
 
 CASH
 
  Prior to the Contribution Transaction ICIFC had no cash accounts. All
operations were funded directly by ICII. Adjustments were made to ICIFC's
financial statements to reflect these fundings as Borrowings from ICII. ICIFC
did not reflect any accounts receivable or payable on its balance sheets prior
to the Contribution Transaction because all transactions of ICIFC either
increased or decreased its borrowings from ICII.
 
                                     F-38
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At September 30, 1996 $2.4 million (unaudited) of the mortgage servicing
rights relates to $576.4 million (unaudited) of mortgage loans sold, servicing
retained by ICIFC, to IMH during the nine months ended September 30, 1996.
 
 BORROWINGS
 
  The Company has a $600 million warehouse borrowing agreement with IWLG of
which $169.0 million (unaudited) and $550 million was outstanding at September
30, 1996 and December 31, 1995, respectively. Interest expense recorded
related to this borrowing was $25.6 million (unaudited) and $1.3 million for
the nine months ended September 30, 1996 and for the year ended December 31,
1995, respectively.
 
 RELATED PARTY LOAN
 
  In September 1996, ICIFC issued a $1.25 million secured residential first
mortgage loan to the Chairman of IMH. Terms of the loan include monthly
interest only payments at 8% per annum with the balance due in full on October
1, 1997.
 
 BULK MORTGAGE LOAN PURCHASES
 
  During the nine months ended September 30, 1996 (unaudited), ICIFC purchased
from ICII bulk mortgage loans packages of 30-year fully amortizing six-month
adjustable LIBOR and 30-and 15-year fixed rate first and second trust deed
mortgages having a principal balance of $215.2 million (unaudited) with net
premiums paid of $3.8 million (unaudited). Servicing rights on all mortgage
loans were released to ICIFC.
 
  On December 5, 1995 and December 13, 1995, ICIFC purchased from ICII bulk
mortgage loan packages of 30-year fully amortizing six-month adjustable LIBOR
and one-year adjustable Treasury Bill rate loans and 30 and 15-year fixed rate
second trust deed mortgages with servicing rights on all mortgage loans
released to ICIFC. The principal balances of the mortgages at the time of
purchase was $172.3 million, with net premiums paid of $3.7 million.
 
  On December 29, 1995, ICIFC purchased from SPTL two bulk mortgage loan
packages of 30-year fully amortizing six-month adjustable LIBOR, one-year
adjustable Treasury Bill rate loans and 30- and 15-year fixed rate fully
amortizing loans. The principal balances of the loans in the servicing
released and servicing retained bulk package at the time of purchase was
$328.5 million with net premiums paid of $3.5 million.
 
 BULK MORTGAGE LOAN SALES (UNAUDITED)
 
  During the nine months ended September 30, 1996, ICIFC sold to IMH bulk
mortgage loans packages of 30-year fully amortized six-month adjustable LIBOR
and 15-year fixed rate second trust deed mortgages having a principal balance
of $576.2 million (unaudited) with net premiums paid of $14.8 million
(unaudited). In conjunction with these sales, ICIFC recorded originated
mortgage servicing rights of $2.4 million (unaudited) and a deferred gain of
$2.4 million (unaudited), which will be amortized over the life of the loans.
 
 OCCUPANCY
 
  Subsequent to the Contribution Transaction, the Company is allocated rent
expense from IMH based on number of employees. Such allocation was $12,210 for
the period November 21, 1995 through December 31, 1995.
 
 NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT
 
  Pursuant to the Non-Compete Agreement, ICII and any entity of which ICII
owns more than 25% of the voting securities (a 25% entity) may not compete
with IWLG's Warehouse Lending Operations and may not establish a network of
third party correspondent loan originators or another end-investor in non-
conforming mortgage loans. The agreement expires in November 1997.
 
                                     F-39
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Pursuant to the Right of First Refusal Agreement, ICII granted ICIFC a right
of first refusal to purchase all non-conforming mortgage loans that ICII or
any 25% entity originates or acquires and subsequently offers for sale and
ICIFC granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all non-conforming mortgage loans that ICIFC acquires and
subsequently offers for sale. In addition, for the period earlier of nine
months from the effective date of the Initial Public Offering and that date
upon which IMH accumulates $300 million of mortgage loans and/or mortgage-
backed securities, neither ICII nor any 25% entity will be permitted to
purchase any non-conforming bulk loan package having a principal balance of
$50 million or more without first allowing ICIFC the opportunity to bid to
purchase said package.
 
  Additional related party transactions are described elsewhere in the
financial statement footnotes.
 
6. INCOME TAXES
 
  The Financial Accounting Standards Board issued Statement No. 109,
"Accounting For Income Taxes" (SFAS 109) which was effective for fiscal years
beginning after December 15, 1992. ICIFC adopted SFAS 109 on January 1, 1993
on a prospective basis. Implementation of SFAS 109 had no material impact on
ICIFC's financial position or results of operations for the year ended
December 31, 1993.
 
  ICIFC's income taxes were as follows:
 
<TABLE>
<CAPTION>
                                               FOR THE YEAR ENDED DECEMBER 31,
                                               --------------------------------
                                                  1995      1994        1993
                                               ---------- ---------  ----------
   <S>                                         <C>        <C>        <C>
   Current:
     Federal.................................. $  862,926 $(316,465) $ (769,178)
     State....................................    169,241  (109,137)   (265,259)
                                               ---------- ---------  ----------
   Total current..............................  1,032,167  (425,602) (1,034,437)
                                               ---------- ---------  ----------
   Deferred:
     Federal..................................     11,614   605,643   3,048,990
     State....................................     25,275   208,863   1,051,476
                                               ---------- ---------  ----------
   Total deferred.............................     36,889   814,506   4,100,466
                                               ---------- ---------  ----------
   Total income taxes......................... $1,069,056 $ 388,904  $3,066,029
                                               ========== =========  ==========
</TABLE>
 
  The income tax provision differs from statutory Federal corporate income tax
rate primarily due to state income taxes.
 
  Deferred income taxes arise from differences in the bases of assets and
liabilities for tax and financial reporting purposes. The following table
shows the primary components of ICIFC's net deferred tax liability at December
31, 1995 and 1994.
 
<TABLE>
<CAPTION>
                                                              1995      1994
                                                             ------- ----------
   <S>                                                       <C>     <C>
   Deferred tax liabilities:
     Mortgage servicing rights.............................. $   --  $4,810,361
     State tax benefit......................................  10,967        --
                                                             ------- ----------
       Total................................................ $10,967 $4,810,361
                                                             ======= ==========
</TABLE>
 
  ICIFC's net deferred tax liabilities are included on the balance sheets in
borrowings from ICII at December 31, 1995 and 1994.
 
  There were no deferred tax assets at December 31, 1995 and 1994.
 
                                     F-40
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value
of Financial Instruments," and SFAS No. 119, "Disclosures About Derivative
Financial Instruments and Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by ICIFC using available market
information and appropriate valuation methodologies, however, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts ICIFC could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1995
                                                            -------------------
                                                            CARRYING ESTIMATED
                                                             AMOUNT  FAIR VALUE
                                                            -------- ----------
                                                                (DOLLARS IN
                                                                THOUSANDS)
   <S>                                                      <C>      <C>
   Assets:
     Cash.................................................. $  2,184  $  2,184
     Mortgage loans held for sale..........................  544,273   544,273
   Liabilities:
     Borrowings from IWLG..................................  550,291   550,291
     Off balance-sheet commitments, unrealized gains
      (losses).............................................      --    (38,021)
</TABLE>
 
  The fair value estimates as of December 31, 1995 are based on pertinent
information available to management as of that date. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
 
  The following describes the methods and assumptions used by ICIFC in
estimating fair values.
 
 CASH
 
  The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest rate
or credit concerns.
 
 MORTGAGE LOANS HELD FOR SALE
 
  The fair value of mortgage loans held for sale is estimated based on quoted
market prices from dealers and brokers for similar types of mortgage loans.
 
 BORROWINGS FROM IWLG
 
  Fair values approximate the carrying amounts because of the short-term
maturity of the liabilities.
 
 OFF BALANCE SHEET COMMITMENTS
 
  The fair value of commitments to purchase mortgage loans is equal to the
unamortized commitment fee received by the Company from sellers to purchase
such mortgage loans.
 
                                     F-41
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
8. EMPLOYEE BENEFIT PLANS
 
 PROFIT SHARING AND 401(K) PLAN
 
  Prior to July 1, 1993, Imperial Bancorp (the majority shareholder of ICII)
had a noncontributory profit sharing plan in which employees the Company were
eligible to participate at year end if they had been employed for at least
1,000 hours during the year. For 1993, there was no contribution charged to
operations.
 
  Imperial Bancorp also had a 401(k) plan in which all employees of ICIFC had
been eligible to participate. On July 1, 1993, ICII terminated its
participation in Imperial Bancorp's 401(k) and profit sharing plans,
establishing its own 401(k) plan (the Plan) in which employees of ICIFC were
eligible to participate. On September 30, 1993, Imperial Bancorp transferred
all plan assets to ICII.
 
  Under the ICII's 401(k) plan, employees of the Company may contribute up to
14% of their salaries. The Company will match 50% of the first 4% of employee
contributions. An additional Company contribution may be made at the
discretion of ICIFC.
 
  ICIFC does not have its own 401(k) or profit sharing plan. As such,
employees of ICIFC participate in ICII's 401(k) plan. The Company's matching
and discretionary contributions were not significant for any period presented.
 
9. COMMITMENTS AND CONTINGENCIES
 
 LOAN SERVICING
 
  As of December 31, 1994, ICIFC was servicing loans for others totaling
approximately $1.9 billion. Properties securing the mortgage loans in ICIFC's
servicing portfolio are primarily located in California. No loans were
serviced for others at December 31, 1995. As of September 30, 1996, ICIFC was
servicing loans for others totaling approximately $1.2 billion (unaudited).
 
  Related fiduciary funds are held in trust for investors in non-interest
bearing accounts. These funds are segregated in special bank accounts and are
held as deposits at SPTL.
 
 SALES OF LOANS AND SERVICING RIGHTS
 
  In the ordinary course of business, ICIFC is exposed to liability under
representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain circumstances,
ICIFC is required to repurchase mortgage loans if there has been a breach of
representations or warranties. In the opinion of management, the potential
exposure related to these representations and warranties will not have a
material adverse effect on the financial position and operating results of
ICIFC.
 
  During the year ended December 31, 1994, ICIFC retained servicing rights on
$1.6 billion of mortgage loans sold and released servicing rights to the
purchasers on $199 million of mortgage loans sold. During the year ended
December 31, 1993, ICIFC retained servicing rights on $1.2 billion of mortgage
loans sold and released servicing rights to the purchasers on $552 million of
mortgage loans sold.
 
 COMMITMENTS
 
  ICIFC establishes mortgage loan purchase commitments (master commitments)
with sellers that, subject to certain conditions, entitle the seller to sell
and obligate ICIFC to purchase a specified dollar amount of non-conforming
mortgage loans over a period generally ranging from six months to one year.
The terms of each master commitment specify whether a seller may sell loans to
ICIFC on a mandatory, best efforts or optional
 
                                     F-42
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
basis, or a combination thereof. Master commitments generally do not obligate
ICIFC to purchase loans at a specific price, but rather provide the seller
with a future outlet for the sale of its originated loans based on ICIFC's
quoted prices at the time of purchase.
 
  ICIFC may from time to time provide provisions for loan losses related to
estimating losses from the breach of a standard representation and warranty on
mortgage loans previously sold. ICIFC recorded such provision for the nine
months ended September 30, 1996 of $728,091 (unaudited).
 
  As of September 30, 1996 (unaudited) and December 31, 1995, ICIFC had
outstanding short term master commitments with 62 (unaudited) and 18 sellers
to purchase mortgage loans in the aggregate principal amount of approximately
$774 million (unaudited) and $241.0 million over periods ranging from six
months to one year, of which $79.9 million (unaudited) and $35.7 million,
respectively, had been purchased or committed to be purchased pursuant to rate
locks. These rate-locks were made pursuant to master commitments, bulk rate-
locks and other negotiated rate-locks. There is no exposure to credit loss in
this type of commitment until the loans are funded, and interest rate risk
associated with the short-term commitments is mitigated by the use of forward
contracts to sell loans to investors.
 
 FORWARD CONTRACTS
 
  The Company sells mortgage-backed securities through forward delivery
contracts with major dealers in such securities. At September 30, 1996 and
December 31, 1995, the Company had $125,500,000 (unaudited) and $86,700,000,
respectively, in outstanding commitments to sell mortgage loans through
mortgage-backed securities. These commitments allow the Company to enter into
mandatory commitments when the Company notifies the investor of its intent to
exercise a portion of the forward delivery contracts. The Company was not
obligated under mandatory commitments to deliver loans to such investors at
September 30, 1996 (unaudited) and December 31, 1995.
 
  The credit risk of forward contracts relates to the counterparties' ability
to perform under the contract. The Company evaluates counterparties based on
their ability to perform prior to entering into any agreements.
 
 OPTIONS
 
  In order to protect against changes in the value of mortgage loans held for
sale, the Company may sell call or buy put options on U.S. Treasury bonds and
mortgage-backed securities. The Company generally sells call or buys put
options to hedge against adverse movements of interest rates affecting the
value of its mortgage loans held for sale.
 
  The risk in writing a call option is that the Company gives up the
opportunity for profit if the market price of the mortgage loans increases and
the option is exercised. The Company also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist. The risk of buying a put option is limited to the premium the Company
paid for the put option.
 
  The Company had written option contracts with an outstanding principal
balance of $40.0 million (unaudited) and $16.0 million at September 30, 1996
and December 31, 1995, respectively. The Company received approximately
$170,000 (unaudited) and $100,000 in premiums on these options at September
30, 1996 and December 31, 1995, respectively.
 
                                     F-43
<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OF SOLICITATION IS UNLAWFUL.
 
 
                                ---------------
 
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Available Information.....................................................    2
Prospectus Summary........................................................    3
Risk Factors..............................................................    8
The Company...............................................................   23
Use of Proceeds...........................................................   23
Price Range of Common Stock...............................................   23
Dividend Policy and Distributions.........................................   24
Capitalization............................................................   25
Selected Financial Data...................................................   26
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   29
Business..................................................................   40
Imperial Credit Mortgage Holdings, Inc. ..................................   62
Imperial Credit Advisors, Inc. ...........................................   68
Relationships with Affiliates.............................................   72
Certain Transactions......................................................   72
Shares Eligible for Future Sale...........................................   77
Principal Stockholders....................................................   78
Description of Capital Stock..............................................   78
Certain Provisions of Maryland Law and of the Company's Charter and
 Bylaws...................................................................   81
Federal Income Tax Considerations.........................................   84
ERISA Investors...........................................................   93
Underwriting..............................................................   94
Legal Matters.............................................................   95
Experts...................................................................   95
Glossary..................................................................   95
Index to Financial Statements.............................................  F-1
</TABLE>    
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
 
                                2,500,000 SHARES
 
 
                                      LOGO
 
 
                                 COMMON STOCK
 
                                ---------------
 
                                  PROSPECTUS
 
                                ---------------
 
                            PAINEWEBBER INCORPORATED
 
                            OPPENHEIMER & CO., INC.
 
                           STIFEL, NICOLAUS & COMPANY
                                  INCORPORATED
 
                            EVEREN SECURITIES, INC.
 
                                ---------------
                                  
                                      , 1996     
 
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>   
<CAPTION>
                                                                        AMOUNT
                                                                        TO BE
                                                                         PAID
                                                                       --------
<S>                                                                    <C>
SEC registration fee.................................................. $ 19,655
NASD filing fee.......................................................    6,986
American Stock Exchange listing fee...................................   17,500
Printing and engraving expenses.......................................  200,000
Legal fees and expenses...............................................  200,000
Accounting fees and expenses..........................................  150,000
Blue Sky fees and expenses............................................   50,000
Transfer agent and custodian fees.....................................   20,000
Miscellaneous.........................................................   85,859
                                                                       --------
  Total............................................................... $750,000
                                                                       ========
</TABLE>    
 
ITEM 31. SALES TO RELATED PARTIES
 
  On November 20, 1995, the effective date of the Registrant's initial public
offering, ICII contributed to ICIFC certain of the operating assets and
certain customer lists of ICII's mortgage conduit operations including all of
ICII's mortgage conduit operations' commitments to purchase mortgage loans
subject to rate locks from correspondents (having a principal balance of $43.3
million at September 30, 1995), in exchange for shares representing 100% of
the common stock and 100% of the non-voting preferred stock of ICIFC.
Simultaneously, on such date, in exchange for 500,000 shares of Common Stock,
ICII (1) contributed to the Registrant all of the outstanding non-voting
preferred stock of ICIFC, which represents 99% of the economic interest in
ICIFC,(2) caused SPTL to contribute to the Registrant certain of the operating
assets and certain customer lists of SPTL's warehouse lending division, and
(3) executed an agreement not to compete and a right of first refusal
agreement each having a term of two years from the effective date of the
Registrants' initial public offering. This contribution is known as the
"Contribution Transaction." Of the 500,000 shares of Common Stock issued
pursuant to the Contribution Transaction, 450,000 shares were issued to ICII
and 50,000 shares were issued to SPTL. The shares issued to ICII and SPTL were
issued in reliance on the exemption from registration contained in Section
4(2) of the Securities Act.
 
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
  The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
 
  The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (1) any
present or former Director or officer or (2) any individual who, while a
Director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust,
 
                                     II-1
<PAGE>
 
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his status as a present or former Director or officer of the Company. The
Bylaws of the Company obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (1) any present or former Director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (2) any individual who, while a Director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company.
 
  The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (1) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (2) the director or officer actually
received an improper personal benefit in money, property or services or (3) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (1) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (2) a written statement by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that
the standard of conduct was not met.
 
  In addition, the Registrant has entered into an Indemnity Agreement (Exhibit
10.4 hereto) with its officers and Directors. The Underwriting Agreement
(Exhibit 1.1) also provides for indemnification by the Underwriters of the
Company, its Directors and officers and persons who control the Company within
the meaning of Section 15 of the Securities Act with respect to certain
liabilities, including liabilities arising under the Securities Act.
 
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
 
  (a) Financial Statements included in the Prospectus are:
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
   Consolidated Balance Sheet at September 30, 1996 (unaudited) and
    Consolidated Balance Sheets at December 31, 1995 and 1994 (audited);
   Consolidated Statements of Operations for the nine months ended
    September 30, 1996 and 1995 (unaudited) and Consolidated Statements
    of Operations for the years ended December 31, 1995, 1994 and 1993
    (audited);
   Consolidated Statement of Changes in Stockholders' Equity for the nine
    months ended September 30, 1996 (unaudited) and Consolidated
    Statements of Changes in Stockholders' Equity for the years ended
    December 31, 1995, 1994 and 1993 (audited);
   Consolidated Statements of Cash Flows for the nine months ended
    September 30, 1996 and 1995 (unaudited) and Consolidated Statements
    of Cash Flows for the years ended December 31, 1995, 1994 and 1993
    (audited);
   Notes to Consolidated Financial Statements
 
                                     II-2
<PAGE>
 
                            ICI FUNDING CORPORATION
 
   Balance Sheet at September 30, 1996 (unaudited) and Balance Sheets at
    December 31, 1995 and 1994 (audited);
   Statements of Operations for the nine months ended September 30, 1996
    and 1995 (unaudited) and Statements of Operations for the years ended
    December 31, 1995, 1994 and 1993 (audited);
   Statement of Changes in Shareholders' Equity for the nine months ended
    September 30, 1996 (unaudited) and Statements of Changes in
    Shareholders' Equity for the years ended December 31, 1995, 1994 and
    1993 (audited);
   Statements of Cash Flows for the nine months ended September 30, 1996
    and 1995 (unaudited) and Statements of Cash Flows for the years ended
    December 31, 1995, 1994 and 1993 (audited)
   Notes to Financial Statements
 
  All schedules have been omitted because they are either not applicable, not
required or the information required has been disclosed in the financial
statements and related notes or otherwise in the Prospectus.
 
  (b) Exhibits
 
<TABLE>   
<CAPTION>
 EXHIBIT
   NO.
 -------
 <C>     <S>
  1.1    -- Form of Underwriting Agreement.
  3.1+   -- Charter of the Registrant.
  3.2+   -- Bylaws of the Registrant.
  4.1+   -- Form of Stock Certificate of the Company.
  5.1    -- Opinion of Freshman, Marantz, Orlanski, Cooper & Klein.
  5.2    -- Opinion of Ballard Spahr Andrews & Ingersoll.
  8.1    -- Opinion of Latham & Watkins.
 10.1+   -- Form of Management Agreement between the Registrant and Imperial
            Credit Advisors, Inc.
 10.2+   -- Form of Submanagement Agreement between Imperial Credit Advisors,
            Inc. and Imperial Credit Industries, Inc.
 10.3+   -- Stock Option Plan.
 10.4+   -- Form of Indemnity Agreement between the Registrant and its
            Directors and officers.
 10.5+   -- Form of Tax Agreement between the Registrant and Imperial Credit
            Industries, Inc.
 10.6+   -- Form of Services Agreement between the Registrant and Imperial
            Credit Industries, Inc.
 10.7+   -- Form of Sublease between the Registrant and Imperial Credit
            Industries, Inc. regarding Santa Ana Heights facility.
 10.8+   -- Form of Employment Agreement.
 10.9+   -- Form of Loan Purchase and Administrative Services Agreement between
            the Registrant and ICI Funding Corporation.
 10.10+  -- Form of Contribution Agreement between the Registrant, Imperial
            Credit Industries, Inc., Southern Pacific Thrift & Loan
            Association, ICI Funding Corporation and Imperial Warehouse Lending
            Group, Inc.
 10.11+  -- Form of Non-Competition Agreement between the Registrant and
            Imperial Credit Industries, Inc.
 10.12+  -- Form of Right of First Refusal Agreement between Imperial Credit
            Industries, Inc. and ICI Funding Corporation.
 10.14++ -- Servicing Agreement between the Registrant and ICI Funding
            Corporation.
 11*     -- Statement regarding computation of per share earnings.
 21.1    -- Subsidiaries of the Registrant.
 23.1    -- Consent of Freshman, Marantz, Orlanski, Cooper & Klein (contained
            in Exhibit 5.1).
 23.2    -- Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit
            5.2).
 23.3    -- Consent of Latham & Watkins (contained in Exhibit 8.1).
 23.4    -- Consent of KPMG Peat Marwick LLP regarding Registrant.
 23.5    -- Consent of KPMG Peat Marwick LLP regarding ICI Funding Corporation.
 24.1*   -- Power of Attorney (Included on Signature Page).
</TABLE>    
 
                                      II-3
<PAGE>
 
- --------
   
*  Previously filed.     
+  Incorporated by reference to, and all such exhibits have the corresponding
   Exhibit Number filed as part of the Registration Statement on Form S-11
   (File No. 33-96670) and Amendments No. 1, 2 and 3 filed with the Securities
   and Exchange Commission on September 7, 1995, October 23, 1995, October 30,
   1995 and November 8, 1995, respectively.
   
++ Incorporated by reference to, and all such exhibits have the corresponding
   Exhibit Number filed as part of the Registration Statement on Form S-11
   (File No. 333-04011) and Amendment No. 1 filed with the Securities and
   Exchange Commission on May 17, 1996 and May 30, 1996, respectively.     
 
ITEM 36. UNDERTAKINGS
 
  The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
  Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
 
  The undersigned Registrant hereby undertakes:
 
    (1) That for purposes of determining any liability under the Securities
  Act, the information omitted from the form of Prospectus filed as part of
  this Registration Statement in reliance upon Rule 430A and contained in a
  form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
  (4) or 497(h) under the Securities Act shall be deemed to be part of this
  Registration Statement as of the time it was declared effective.
 
    (2) For the purpose of determining any liability under the Securities
  Act, each post-effective amendment that contains a form of prospectus shall
  be deemed to be a new registration statement relating to the securities
  offered therein, and the offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.
 
                                     II-4
<PAGE>
 
                                  SIGNATURES
   
  Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-11 and has duly caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Ana Heights, State of
California, on the 1st day of November, 1996.     
 
                                       IMPERIAL CREDIT MORTGAGE HOLDINGS,
                                        INC.
                                          
                                       By:    /s/ Joseph R. Tomkinson
                                           -------------------------------
                                                  Joseph R. Tomkinson
                                              Vice Chairman of the Board
                                              and Chief Executive Officer       

       
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.     
 
<TABLE>   
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
<S>                                  <C>                           <C>
     /s/ Joseph R. Tomkinson         Vice Chairman of the Board     November 1, 1996
____________________________________ and Chief Executive Officer
        Joseph R. Tomkinson          (Principal Executive Officer)

                 *                   Chief Financial Officer        November 1, 1996
____________________________________ (Principal Financial and
          Richard J. Johnson         Accounting Officer)

                 *                   Chairman of the Board          November 1, 1996
____________________________________
           H. Wayne Snavely

                 *                   Director                       November 1, 1996
____________________________________
            James Walsh

                 *                   Director                       November 1, 1996
____________________________________
            Frank Filipps

                 *                   Director                       November 1, 1996
____________________________________
          Stephan R. Peers
</TABLE>    
        
   
*By:  /s/ Joseph R. Tomkinson
    -------------------------- 
          Joseph R. Tomkinson 
           Attorney-in-Fact     
 
 
                                     II-5

<PAGE>
 
                                                                     EXHIBIT 1.1


                                2,500,000 SHARES

                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.

                                  COMMON STOCK

                             UNDERWRITING AGREEMENT
                             ----------------------


                                                                   _______, 1996


PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
STIFEL, NICOLAUS & COMPANY INCORPORATED
EVEREN SECURITIES, INC.
  As Representatives of the
  several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019

Dear Sirs:

       Imperial Credit Mortgage Holdings, Inc., a Maryland corporation (the
"Company"), proposes to sell an aggregate of 2,500,000 shares (the "Firm
Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), to you and to the other underwriters named in Schedule I (collectively,
the "Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 375,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b).  The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."

       The initial public offering price per share for the Shares and the
purchase price per share for the Shares
<PAGE>
 
                                                                               2

to be paid by the several Underwriters shall be agreed upon by the Company and
the Representatives, acting on behalf of the several Underwriters, and such
agreement shall be set forth in a separate written instrument substantially in
the form of Exhibit A hereto (the "Price Determination Agreement").  The Price
Determination Agreement may take the form of an exchange of any standard form of
written telecommunication among the Company and the Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto.  The
offering of the Shares will be governed by this Agreement, as supplemented by
the Price Determination Agreement.  From and after the date of the execution and
delivery of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and, unless the context otherwise indicates, all references
contained herein to "this Agreement" and to the phrase "herein" shall be deemed
to include the Price Determination Agreement.

       The Company confirms as follows its agreements with the Representatives
and the several other Underwriters.

       1.   Agreement to Sell and Purchase.
            ------------------------------ 

          (a) On the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to each Underwriter named below, and each
Underwriter, severally and not jointly, agrees to purchase from the Company at
the purchase price
<PAGE>
 
                                                                               3

per share for the Firm Shares to be agreed upon by the Representatives and the
Company in accordance with Section 1(c) or 1(d) of this Agreement and set forth
in the Price Determination Agreement, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I, plus such additional number
of Firm Shares which such Underwriter may become obligated to purchase pursuant
to Section 8 hereof.  If the Company elects to rely on Rule 430A (as
hereinafter defined), Schedule I may be attached to the Price Determination
Agreement.

          (b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 375,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares.  The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 45th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 45th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares
<PAGE>
 
                                                                               4

Notice (the "Option Closing Date") setting forth the aggregate number of Option
Shares to be purchased and the time and date for such purchase.  On the Option
Closing Date, the Company will issue and sell to the Underwriters the number of
Option Shares set forth in the Option Shares Notice, and each Underwriter will
purchase such percentage of the Option Shares as is equal to the percentage of
Firm Shares that such Underwriter is purchasing, as adjusted by the Represen-
tatives in such manner as they deem advisable to avoid fractional shares.

          (c) If the Company has elected not to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be agreed
upon and set forth in the Price Determination Agreement, which shall be dated
the date hereof, and an amendment to the Registration Statement (as hereinafter
defined) containing such per share price information shall be filed before the
Registration Statement becomes effective.

          (d) If the Company has elected to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be agreed
upon and set forth in the Price Determination Agreement.  In the event such
price has not been agreed upon and the Price Determination Agreement has not
been executed by
<PAGE>
 
                                                                               5

the close of business on the fourteenth business day following the date on
which the Registration Statement becomes effective, this Agreement shall
terminate forthwith, without liability of any party to any other party except
that Sections 4(i), 4(o) and 6 shall remain in effect.

       2.   Delivery and Payment.
            -------------------- 

       Delivery of the Firm Shares shall be made to the Representatives for the
accounts of the Underwriters against payment of the purchase price by credit to
the account of the Company with the Depository Trust Company.  Such payments
shall be made at 10:00 a.m., New York City time, on _______, 1996 or at such
time on such other date as may be agreed upon by the Company and the
Representatives, but in no event later than 10 days after such date (such date
is hereinafter referred to as the "Closing Date").

       To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.

       The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company.  The Company will pay
and save each Underwriter and any subsequent holder of the
<PAGE>
 
                                                                               6

Shares harmless from any and all liabilities with respect to or resulting from
any failure or delay in paying Federal and state stamp and other transfer taxes,
if any, which may be payable or determined to be payable in connection with the
original issuance or sale to such Underwriter of the Firm Shares and Option
Shares.

       3.   Representations and Warranties of the Company.
            --------------------------------------------- 

       The Company represents, warrants and covenants to each Underwriter that:

          (a) A registration statement (Registration No. 333-____) on Form S-11
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission.  The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A") of
the Rules and Regulations included at any time as part of the registration
statement.  Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives.  If
such
<PAGE>
 
                                                                               7

registration statement has not become effective, a further amendment to such
registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission.  If such registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations promptly
after execution and delivery of the Price Determination Agreement.  The term
"Registration Statement" means the registration statement as amended at the time
it becomes or became effective (the "Effective Date"), including financial
statements and all exhibits and any information deemed to be included by Rule
430A or Rule 434.  The term "Prospectus" means the prospectus as first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.

          (b) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent to
and including the Closing Date and, if later, the Option Closing Date, and when
any post-effective amendment to the Registration Statement becomes effective or
any amendment or supple-
<PAGE>
 
                                                                               8

ment to the Prospectus is filed with the Commission, the Registration Statement
and the Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement thereto), including the
financial statements included in the Prospectus, did or will comply with all
applicable provisions of the Act and the Rules and Regulations and will contain
all statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a material fact
neces sary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by
<PAGE>
 
                                                                               9

the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto.  For all purposes of this
Agreement, the legend regarding stabilization set forth on the inside front
cover page of the Prospectus, the names of the Underwriters and the amounts of
the selling concession and reallowance set forth in the Prospectus under the
caption "Underwriting" and the identification of counsel to the Underwriters in
the Prospectus under the caption "Legal Matters" constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus.  The Company has not distributed any
offering material in connection with the offering or sale of the Shares other
than the Registration Statement, the preliminary prospectus, the Prospectus or
any other materials, if any, permitted by the Act.

          (c) The only subsidiaries (as defined in the Rules and Regulations) of
the Company are IMH Assets Corp., Imperial Warehouse Lending Group ("IWLG") and
ICI Funding Corp. ("ICIFC") (collectively, the "Subsidiaries").  The Company and
each of its Subsidiaries is, and at the Closing Date and, if later, the Option
Closing Date, will be, a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation.  The Company
and each of its Subsidiaries
<PAGE>
 
                                                                              10

has, and at the Closing Date and, if later, the Option Closing Date, will have,
full power and authority to conduct all the activities conducted by it, to own
or lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company and each
of its Subsidiaries is, and at the Closing Date and, if later, the Option
Closing Date, will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
so qualify will not have a material adverse effect on the Company or any of its
Subsidiaries or their respective business, properties, business prospects,
condition (financial or otherwise) or results of operations (a "Material Adverse
Effect").  All of the outstanding shares of the capital stock of the
Subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company (other than the outstanding common
stock of ICIFC, which is owned by Imperial Credit Industries, Inc.), to the
extent and as is described in the Prospectus, free and clear of all liens,
encumbrances and claims whatsoever.  Except for the stock of the Subsidiaries
and as disclosed in the Registration Statement, the Company does not own, and at
the Closing Date
<PAGE>
 
                                                                              11

and, if later, the Option Closing Date, will not own, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity.  The outstanding shares of preferred stock of ICIFC
have the rights and preferences described in the Prospectus.  Complete and
correct copies of the charter and of the by-laws of the Company and its
Subsidiaries and all amendments thereto have been filed as exhibits to the
Registration Statement or delivered to the Representatives, and no changes
therein will be made subsequent to the date hereof and prior to the Closing Date
or, if later, the Option Closing Date, except such as the Representatives shall
approve.

          (d) All of the outstanding shares of Common Stock have been, and the
Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right.  The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date and, if
later, the Option Closing Date, will be, complete and accurate in all respects.
Except as set forth in the Prospectus, there are no, and at the Closing Date
and, if later, the Option Closing Date, will not be, any options to purchase, or
any rights or warrants to subscribe for, or any securities or
<PAGE>
 
                                                                              12

obligations convertible into, or any contracts, commitments, plans or
arrangements to issue or sell, any shares of capital stock of the Company, any
shares of capital stock of any Subsidiary or any such warrants, convertible
securities or obligations.  The descriptions of the Company's dividend
reinvestment plan, stock option and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately present the information required to be shown with respect
to such plans, arrangements, options and rights.

          (e) The financial statements and schedules included in the
Registration Statement or the Prospectus present the consolidated financial
condition of the Company and ICIFC as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company and ICIFC for
the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus.  No
other financial statements or schedules of the Company or ICIFC are required by
the Act or the Rules and Regulations to be included in the Registration
Statement or the Prospectus.  KPMG Peat Marwick (the "Accountants"), who have
reported on such financial statements and schedules, are independent accountants
with respect to the Company as required by the Act and the Rules and
<PAGE>
 
                                                                              13

Regulations.  The statements included in the Registration Statement with respect
to the Accountants pursuant to Item 509 of Regulation S-K of the Rules and
Regulations are true and correct in all material respects.  The selected
financial data set forth in the Prospectus under the captions "Capitalization"
and "Selected Financial Data" fairly present the information set forth therein
on the basis stated in the Registration Statement.

          (f) Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorization; and (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets.

          (g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) there has
not been and will not have been any change in the capitalization of the Company
or any of its Subsidiaries, or in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, arising for
<PAGE>
 
                                                                              14

any reason whatsoever, (ii) neither the Company nor any of its Subsidiaries
has incurred nor will it incur any material liabilities or obligations, direct
or contingent, nor has it entered into nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions
referred to herein and (iii) neither the Company nor any of its Subsidiaries has
and none of them will have paid or declared any dividends or other distributions
of any kind on any class of their respective classes of capital stock.

          (h) Neither of the Company nor any of its Subsidiaries is, and if
operated in the manner described in the Prospectus under the caption "Business"
will not be, an "investment company," an entity "controlled" by an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").

          (i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavor-
<PAGE>
 
                                                                              15

able ruling, decision or finding might result in a Material Adverse Effect.

          (j) The Company and each of its Subsidiaries has, and at the Closing
Date and, if later, the Option Closing Date, will have, (i) all governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to carry on its business as contemplated in the Prospectus, (ii)
complied in all respects with all laws, regulations and orders applicable to it
or its business and (iii) performed all its obligations required to be performed
by it, and is not, and at the Closing Date and, if later, the Option Closing
Date, will not be, in default, under any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement, lease,
contract or other agreement or instrument (collectively, a "contract or other
agreement") to which it is a party or by which its property is bound or
affected, the effect of any of which, individually or in the aggregate, might
result in a Material Adverse Effect.  To the knowledge of the Company and each
of its Subsidiaries, no other party under any contract or other agreement to
which it is a party is in default in any respect thereunder.  Neither the
Company nor any of its Subsidiaries is, nor at the Closing Date and, if later,
the Option Closing Date, will any of them be, in violation of any provision of
its charter or by-laws.
<PAGE>
 
                                                                              16

          (k) The Company has full corporate power and authority to enter into
this Agreement.  This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with its terms, except as the
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights generally and
moratorium laws in effect from time to time and by equitable principles
restricting the availability of equitable remedies.  The execution and delivery
by the Company of, and the performance by the Company of its obligations under,
this Agreement, the consummation of the transactions contemplated hereby and
the application of the net proceeds from the offering and sale of the Shares to
be sold by the Company in the manner set forth in the Prospectus under the
caption "Use of Proceeds" will not result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give any other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the charter or by-laws of
the Company or any of its Subsidiaries, any contract or other agreement to which
the Company or any of its Subsid-
<PAGE>
 
                                                                              17

iaries is a party or by which the Company or any of its Subsidiaries or any of
its properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its Subsidiaries the effect of any of which, individually or
in the aggregate, might have a Material Adverse Effect.

          (l) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking by
the Company of any other action contemplated hereby, except such as have been
obtained under the Act or the Rules and Regulations and such as may be required
under state securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution by the Underwriters of the Shares.

          (m) The Company and each of its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances, mortgages, security
interests, claims or restrictions, except such as are
<PAGE>
 
                                                                              18

described in, or contemplated by, the Prospectus.  The Company and each of its
Subsidiaries has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company and such Subsidiaries.

          (n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.  All such contracts to which the Company or any Subsidiary is a party
have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against the Company or such Subsidiary in
accordance with the terms thereof.

          (o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when made,
inaccurate, untrue or incorrect.

          (p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Act or
<PAGE>
 
                                                                              19

otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.

          (q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.

          (r) Prior to the Closing Date, the Shares will be duly authorized for
listing by the American Stock Exchange upon official notice of issuance.

          (s) Neither the Company nor any of its Subsidiaries is involved in any
material labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.

          (t) The Company and its Subsidiaries own, or are licensed or otherwise
have the full exclusive right to use, all material trademarks and trade names
which are used in or necessary for the conduct of their respective businesses
as described in the Prospectus.  No claims have been asserted by any person to
the use of any such trademarks or trade names or challenging or questioning the
validity or effectiveness of any such trademark or trade name.  The use, in
connection with the business and operations of the Company and its Subsidiaries
of such trademarks and trade names does not, to the Company's knowledge,
infringe on the rights of any person.
<PAGE>
 
                                                                              20

          (u) Neither the Company or any of its Subsidiaries nor to the
knowledge of the Company any officers, directors, employees or agents acting on
behalf of the Company or any of its Subsidiaries has at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any contributions to any candidate for political office
in accordance with any applicable statute, rule, regulation or ordinance
requiring such disclosure, (ii) made any payment to any local, state, federal or
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed by
applicable law, (iii) made any payment outside the ordinary course of business
to any purchasing or selling agent or person charged with similar duties of any
entity to which the Company or any Subsidiary sells or from which the Company or
any Subsidiary buys products for the purpose of influencing such agent or person
to buy products from or sell products to the Company or such Subsidiary, or (iv)
except as described in the Prospectus, engaged in any transaction, maintained
any bank account or used any corporate funds except for transactions, bank
accounts and funds which have been and are reflected in the normally maintained
books and records of the Company or such Subsidiary.
<PAGE>
 
                                                                              21

          (v) As of the Closing Date and, if later, the Option Closing Date, the
Company and its Subsidiaries shall be insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the business in which it engages as described in
the Prospectus; neither the Company nor any Subsidiary has been refused any
insurance coverage sought or applied for; and the Company has no reason to
believe that it or any Subsidiary will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its proposed
business at a cost that would not result in a Material Adverse Effect.

          (w) As of the Closing Date and, if later, the Option Closing Date, the
Company shall be qualified as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to operate in a manner so as to continue to remain so
qualified.

          (x) The Company has complied, and until the completion of the
distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075
of the Florida Securities and Investor Protection Act and regula-
<PAGE>
 
                                                                              22

tion 3E-900.001 issued thereunder with respect to the offering and sale of the
Shares.

          (y) Neither the Company nor any of its Subsidiaries is, and if
operated in the manner described in the Prospectus under the caption "Business"
will not be, a "broker" within the meaning of Section 3(a)(4) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act)" or a "dealer" within the
meaning of Section 3(a)(5) of the Exchange Act or required to be registered
pursuant to Section 15(a) of the Exchange Act.

       4.   Agreements of the Company.
            ------------------------- 
       The Company agrees with the several Underwriters as follows:

          (a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement, any preliminary
prospectus or the Prospectus, unless a copy thereof shall first have been
submitted to the Representatives within a reasonable period of time prior to
the filing thereof and the Representatives shall not have objected thereto in
good faith.

          (b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm
<PAGE>
 
                                                                              23

such advice in writing, (1) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective, (2) of any
request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (3) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose or
the threat thereof, (4) of the happening of any event during the period
mentioned in the second sentence of Section 4(e) that in the judgment of the
Company makes any statement made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the Registration Statement
or the Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading and (5) of receipt by the
Company or any Representatives or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus.  If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment.  If the Company
has omitted any information from the Registration Statement pursuant to Rule
430A, the Company will use its best efforts to comply with the provisions of
<PAGE>
 
                                                                              24

and make all requisite filings with the Commission pursuant to said Rule 430A
and to notify the Representatives promptly of all such filings.

          (c) The Company will furnish to each of the Representatives, without
charge, one signed copy of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto, and will furnish to the Representatives, without charge, for
transmittal to each of the other Underwriters, a copy of the Registration
Statement and any post-effective amendment thereto, including financial state-
ments and schedules but without exhibits.

          (d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.

          (e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives 
may reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of
<PAGE>
 
                                                                              25

time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request.

          (f) Prior to any public offering of the Shares by the Underwriters,
the Company will cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of such jurisdictions
as the Representatives may request; provided, that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general service of
process or taxation in any jurisdiction where it is not now so subject.  The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Stock for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the
<PAGE>
 
                                                                              26

event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with the cooperation of the Representatives, will
make every reasonable effort to obtain the withdrawal thereof.

          (g) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.

          (h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement (which need not be audited but
shall be in reasonable detail) for a period of 12 months ended commencing after
the Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).

          (i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement
<PAGE>
 
                                                                              27

is terminated, the Company will pay, or reimburse if paid by the
Representatives, all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
costs and expenses of or relating to (1) the preparation, printing and filing
of the Registration Statement and exhibits to it, each preliminary prospectus,
the Prospectus and any amendment or supplement to the Registration Statement or
the Prospectus, (2) the preparation and delivery of certificates representing
the Shares, (3) the printing of this Agreement, the Agreement Among
Underwriters, any Dealer Agreements and any Underwriters' Questionnaire, (4)
furnishing (including costs of shipping, mailing and courier) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (5) the listing of the Shares on the American Stock
Exchange, (6) any filings required to be made by the Underwriters with the NASD,
and the fees, disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 4(f), including the fees, disbursements and other
charges of counsel to the Underwriters in
<PAGE>
 
                                                                              28

connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company, (9) the
transfer agent for the Shares and (10) the Accountants.

          (j) The Company will not use the proceeds of the sale of the Shares in
such a manner as to require the Company to be registered under the Investment
Company Act.

          (k) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.

          (l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under the caption "Use of Proceeds" and shall file such reports with
the Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.

          (m) The Company will not, and the Company will cause each of Imperial
Credit Industries, Inc., Southern Pacific Thrift and Loan and the Manager to
enter into agreements with the Representatives in the form set forth in Exhibit
B to the effect that they will not, for a period of 120 days after the
commencement of the public
<PAGE>
 
                                                                              29

offering of the Shares, without the prior written consent of PaineWebber
Incorporated, sell, contract to sell, grant any option to sell, or otherwise
dispose of, or require the Company to file with the Commission a registration
statement under the Act to register, any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights to
acquire shares of Common Stock of which they are, or may in the future become,
the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange
Act), other than pursuant to stock option plans or in connection with other
employee incentive compensation arrangements or the Company's dividend
reinvestment plan.

          (n) The Company will not invest in futures contracts, options on
futures contracts or options on commodities unless the Company is exempt from
the registration requirements of the Commodity Exchange Act, as amended (the
"Commodity Act"), or otherwise complies with the Commodity Act.  The Company
will not engage in any activities bearing on the Commodity Act, unless such
activities are exempt from the Commodity Act or otherwise comply with the
Commodity Act.

          (o) If this Agreement shall be terminated by the Company pursuant to
any of the provisions hereof (otherwise than pursuant to Section 8) or if for
any reason the Company shall be unable to perform its obligations hereunder,
the Company will reimburse the several Underwriters
<PAGE>
 
                                                                              30

for all out-of-pocket expenses (including the fees, disbursements and other
charges of counsel to the Underwriters) reasonably incurred by them in
connection herewith.

       5.   Conditions of the Obligations of the Underwriters.
            ------------------------------------------------- 

       In addition to the execution and delivery of the Price Determination
Agreement, the obligations of each Underwriter hereunder are subject to the
following conditions:

          (a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by Rule
424 of the Rules and Regulations and Rule 430A shall have been made.

          (b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
for such purpose shall be pending before or threatened or contemplated by the
Commission, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall
<PAGE>
 
                                                                              31

have been complied with to the satisfaction of the staff of the Commission or
such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives did
not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and, if later, the Option Closing Date, and
signed by the Chief Executive Officer or the Chairman of the Board of Directors
of the Company and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their information and belief), to
the effect of clauses (i), (ii) and (iii).

          (c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, capital stock, indebtedness,
business, business prospects, properties, management, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement and the Prospectus and (ii) none of the Company or any of
its Subsidiaries shall have sustained any material loss or interference with
<PAGE>
 
                                                                              32

its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the judgment of
the Representatives any such development makes it impracticable or inadvisable
to consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.

          (d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of the Subsidiaries or
any of their respective officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole.

          (e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing
<PAGE>
 
                                                                              33

Date, as if made at the Closing Date and, with respect to the Option Shares, at
the Option Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.

          (f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to counsel for the Underwriters, from
Freshman, Marantz, Orlanski, Cooper & Klien, counsel to the Company and ICIFC,
to the effect set forth in Exhibit C.

          (g) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
from Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Underwriters, with
respect to the Registration Statement, the Prospectus and this Agreement, which
opinion shall be satisfactory in all respects to the Representatives.

          (h) On the date of the Prospectus, the Accountants shall have
furnished to the Representatives a letter, dated the date of its delivery,
addressed to the Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent
<PAGE>
 
                                                                              34

accountants with respect to the Company as required by the Act and the Rules and
Regulations and with respect to the financial and other statistical and
numerical information contained in the Registration Statement.  At the Closing
Date and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter from the Accountants, that nothing has come
to their attention during the period from the date of the letter referred to in
the prior sentence to a date (specified in the letter) not more than five days
prior to the Closing Date and, as to the Option Shares, the Option Closing Date,
as the case may be, which would require any change in their letter dated the
date hereof or, if the Company elects to rely on Rule 430A, on the date of the
Prospectus, if it were required to be dated and delivered at the Closing Date
and the Option Closing Date.

          (i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Representatives, to the effect that:
<PAGE>
 
                                                                              35

          (i)  Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects and do
not omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not untrue or misleading and (B) in the
case of the certificate delivered at the Closing Date and, as to any Option
Shares, the Option Closing Date, since the Effective Date no event has occurred
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein not untrue or misleading in any material
respect.

          (ii)  Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the time
such certificate is delivered, true and correct in all material respects.

          (iii)  Each of the covenants required herein to be performed
by the Company on or prior to the delivery of such certificate has been duly,
timely and fully performed and each condition herein required to be complied
with by the Company on or prior to the date of such certificate has been duly,
timely and fully complied with.
<PAGE>
 
                                                                              36

          (j) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 4(m).

          (k) No proceeding by any state securities commission with respect to
the Company shall be in effect on the Closing Date or the Option Closing Date.

          (l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the American Stock Exchange upon official notice of
issuance.

          (m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and complete-
ness at the Closing Date and the Option Closing Date of any statement in the
Registration Statement or the Prospectus, as to the accuracy at the Closing Date
and, as to any Option Shares, the Option Closing Date, of the representations
and warranties of the Company herein, as to the performance by the Company of
its obligations hereunder, or as to the fulfillment of the conditions concurrent
and precedent to the obligations hereunder of the Representatives.

       6. Indemnification.
          --------------- 

          (a) The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls each Underwriter within the meaning of
<PAGE>
 
                                                                              37

Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding between any
of the indemnified parties and any indemnifying parties or between any
indemnified party and any third party, or otherwise, or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, provided that the Company will not be
liable to the extent that such loss, claim, liability, expense or damage arises
from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to any
<PAGE>
 
                                                                              38

Underwriter furnished in writing to the Company by the Representatives on behalf
of any Underwriter expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus, and provided further that the Company
will not be liable to any Underwriter, the directors, officers, employees or
agents of such Underwriter or any person controlling such Underwriter with
respect to any loss, claim, liability, expense, charge or damage arising out of
or based on any untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in any preliminary prospectus which is
corrected in the Prospectus if the person asserting any such loss, claim,
liability, charge or damage purchased Shares from such Underwriter but was not
sent or given a copy of the Prospectus at or prior to the written confirmation
of the sale of such Shares to such Person.  This indemnity agreement will be in
addition to any liability that the Company might otherwise have.

          (b) Each Underwriter will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, each director of the Company and
each officer of the Company who signs the Registration Statement to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
<PAGE>
 
                                                                              39

based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.

          (c) Any party that proposes to assert the right to be indemnified
under this Section 6 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 6, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 6 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party.  If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the
<PAGE>
 
                                                                              40

action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense.  The indemnified party will have the right to employ its own
counsel (including local counsel) in any such action, but the fees, expenses and
other charges of such counsel will be at the expense of such indemnified party
unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within
<PAGE>
 
                                                                              41

a reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties.  It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction (and of more than one separate
firm admitted to practice in any other relevant jurisdiction) at any one time
for all such indemnified party or parties.  All such fees, disbursements and
other charges will be reimbursed by the indemnifying party promptly as they are
incurred.  An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).  No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 6 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
<PAGE>
 
                                                                              42

          (d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other.  The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in
<PAGE>
 
                                                                              43

each case as set forth in the table on the cover page of the Prospectus.  If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault of the Company, on the
one hand, and the Underwriters, on the other, with respect to the statements or
omissions which resulted in such loss, claim, liability, expense or damage, or
action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering.  Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Representatives on behalf of the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 6(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein.  The amount paid or payable by
an indemnified party as a result of the
<PAGE>
 
                                                                              44

loss, claim, liability, expense or damage, or action in respect thereof,
referred to above in this Section 6(d) shall be deemed to include, for purpose
of this Section 6(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.  Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.  The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof.  Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to
<PAGE>
 
                                                                              45

notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 6(d).
No party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).

          (e) The indemnity and contribution agreements contained in this
Section 6 and the representations and warranties of the Company contained in
this Agreement, or in certificates or other instruments delivered pursuant
hereto, shall survive and remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the Underwriters or
any of their controlling persons, (ii) acceptance of any of the Shares and
payment therefor or (iii) any termination of this Agreement.

       7.   Termination.
            ----------- 

       The obligations of the several Underwriters under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the Company
from the Representatives, without liability on the part of any Underwriter to
the Company, if, prior to delivery and payment for the Shares (or the Option
Shares, as the case may be), in the sole judgment of the Representatives, (i)
trading in any of the equity securities of the Company shall have been suspended
by the Commission, by an
<PAGE>
 
                                                                              46

exchange that lists the Shares or by the National Association of Securities
Dealers Automated Quotation National Market System, (ii) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (iii) a general banking moratorium shall have been
declared by either Federal or New York State authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall have
occurred the effect of any of which is such as to make it, in the sole judgment
of the Representatives, impracticable or inadvisable to market the Shares on
the terms and in the manner contemplated by the Prospectus.

       8.   Substitution of Underwriters.
            ---------------------------- 

       If any one or more of the Underwriters shall fail or refuse to purchase
any of the Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
<PAGE>
 
                                                                              47

Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares, the other Underwriters shall be
obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase, in the
proportions which the number of Firm Shares which they have respectively agreed
to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided that in no
event shall the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to this
Section 8 by more than one-ninth of the number of Firm Shares agreed to be
purchased by such Underwriter without the prior written consent of such
Underwriter.  If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company for the purchase or sale of any Shares under
<PAGE>
 
                                                                              48

this Agreement.  In any such case either the Representatives or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected.  Any action taken pursuant to this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.

       9.   Miscellaneous.
            ------------- 

       Notice given pursuant to any of the provisions of this Agreement shall be
in writing and, unless otherwise specified, shall be mailed or delivered (a) if
to the Company, at the office of the Company, 20371 Irvine Avenue, Santa Ana
Heights, CA 92707, Attention:  Chief Financial Officer, or (b) if to the
Underwriters, to the Representatives at the offices of PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attention:  Corporate
Finance Department.  Any such notice shall be effective only upon receipt.  Any
notice under Section 7 or 8 may be made by telex or telephone, but if so made
shall be subsequently confirmed in writing.

       This Agreement has been and is made solely for the benefit of the several
Underwriters and the Company and of the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
<PAGE>
 
                                                                              49

and no other person shall acquire or have any right under or by virtue of this
Agreement.  The term "successors and assigns" as used in this Agreement shall
not include a purchaser, as such purchaser, of Shares from any of the several
Underwriters.

       Any action required or permitted to be taken by the Representatives under
this Agreement may be taken by them jointly or by PaineWebber Incorporated.

       THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
OF SUCH STATE.

       This Agreement may be signed in two or more coun terparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.

       In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

       This Agreement may not be amended or otherwise modified nor may any
provision hereof be waived except by an instrument in writing signed by the
Representatives and the Company.
<PAGE>
 
                                                                              50

       Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Under writers.

                           Very truly yours,

                           IMPERIAL CREDIT MORTGAGE
                           HOLDINGS, INC.

                           By: 
                               --------------------------
                               Title:

Confirmed as of the date first above mentioned:

PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
STIFEL, NICOLAUS & COMPANY INCORPORATED
EVEREN SECURITIES, INC.
Acting on behalf of themselves and as the Representatives
of the other several Underwriters named in Schedule I
hereof.

By:  PAINEWEBBER INCORPORATED


By:  
     ----------------------
     Title:

By:  OPPENHEIMER & CO., INC.


By:  
     ----------------------
     Title:

By:  STIFEL, NICOLAUS & COMPANY
       INCORPORATED


By:  
     ----------------------
     Title:

By:  EVEREN SECURITIES, INC.


By:  
     ----------------------
     Title:
<PAGE>
 
                                                                              51



                                   SCHEDULE I

                                  UNDERWRITERS



                                                 Number of
Underwriter                                     Firm Shares
- -----------                                     -----------

PaineWebber Incorporated
Oppenheimer & Co., Inc.
Stifel, Nicolaus & Company Incorporated
EVEREN Securities, Inc.


                                                ____________
                                                  2,500,000
                                                ============
<PAGE>
 
                                                                       EXHIBIT A



                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.

                             _____________________


                         PRICE DETERMINATION AGREEMENT
                         -----------------------------


                                                                          [DATE]



PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
STIFEL, NICOLAUS & COMPANY INCORPORATED
EVEREN SECURITIES, INC.
  As Representatives of the
  several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019

Dear Sirs:

       Reference is made to the Underwriting Agreement, dated __________ __,
1996 (the "Underwriting Agreement"), among Imperial Credit Mortgage Holdings,
Inc., a Maryland corporation (the "Company") and the several Underwriters named
in Schedule I thereto or hereto (the "Underwriters"), for whom PaineWebber
Incorporated, Oppenheimer & Co., Inc., Stifel, Nicolaus & Company Incorporated
and EVEREN Securities, Inc. and are acting as representatives (the
"Representatives").  The Underwriting Agreement provides for the purchase by the
Underwriters from the Company, subject to the terms and conditions set forth
therein, of an aggregate of 2,500,000 shares (the "Firm Shares") of the
Company's common stock, par value $.01 per share.  This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.

       Pursuant to Section 1 of the Underwriting Agreement, the Company agrees
with the Representative as follows:

          1.  The initial public offering price per share for the Firm Shares
shall be $______.

          2.     The purchase price per share for the Firm Shares to be paid by
the several Underwriters shall be $_____ representing an amount equal to the
initial public offering price set forth above, less $____ per share.
<PAGE>
 

                                                                               2

          3.  Any Underwriter may allow, and any dealer may reallow, a
concession, not in excess of $__ per share, to any Underwriter or to certain
other dealers.

       The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.

       As contemplated by the Underwriting Agreement, attached as Schedule I is
a completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.

       THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.

       If the foregoing is in accordance with your understanding of the
agreement among the Underwriters and the Company, please sign and return to the
Company a counterpart hereof, whereupon this instrument along with all
counterparts and together with the Underwriting Agreement shall be a binding
agreement among the Underwriters and the Company in accordance with its terms
and the terms of the Underwriting Agreement.


                      Very truly yours,

                      IMPERIAL CREDIT MORTGAGE
                      HOLDINGS, INC.



                      By:
                         -------------------------------
                         Title:
<PAGE>
 

                                                                               3

Confirmed as of the date
  first above mentioned:


PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
STIFEL, NICOLAUS & COMPANY INCORPORATED
EVEREN SECURITIES, INC.
Acting on behalf of themselves
and as the Representatives
of the other several Under-
writers named in Schedule I
hereof.

By:  PAINEWEBBER INCORPORATED


By:  
     -------------------------------
     Title:


By:  OPPENHEIMER & CO., INC.


By:  
     -------------------------------
     Title:


By:  STIFEL, NICOLAUS & COMPANY
       INCORPORATED


By:  
     -------------------------------
     Title:



By:  EVEREN SECURITIES, INC.


By:  
     -------------------------------
     Title:
<PAGE>
 
                                                                       EXHIBIT B



                                                [DATE]



PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
STIFEL, NICOLAUS & COMPANY INCORPORATED
EVEREN SECURITIES, INC.
  As Representatives of the
  several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York  10019

Dear Sirs:

       In consideration of the agreement of the several Underwriters, for which
PaineWebber Incorporated, Oppenheimer & Co., Inc., Stifel, Nicolaus & Company
Incorporated and EVEREN Securities, Inc. (the "Representatives") intend to act
as Representatives to underwrite a proposed public offering (the "Offering") of
2,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock")
of Imperial Credit Mortgage Holdings, Inc., a Maryland corporation (the
"Company"), as contemplated by a registration statement with respect to such
shares filed with the Securities and Exchange Commission on Form S-11
(Registration No. 333-_____), the undersigned hereby agrees that the undersigned
will not, for a period of 120 days after the commencement of the public offering
of such shares, without the prior written consent of PaineWebber Incorporated,
offer to sell, sell, contract to sell, grant any option to sell, or otherwise
dispose of, or require the Company to file with the Securities and Exchange
Commission a registration statement under the Securities Act
<PAGE>
 
                                                                               2

of 1933 (the "Act") to register, any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights to
acquire shares of Common Stock of which the undersigned is now, or may in the
future become, the "beneficial owner" (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934), other than pursuant to employee stock
option plans, the Company's dividend reinvestment plan or in connection with
other employee incentive compensation arrangements.

       THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.

                           Very truly yours,


                           By:
                                -------------------------------


                   Print Name:  
                                -------------------------------
<PAGE>
 
                                                                       Exhibit C



                         Form of Opinion of Counsel to
                           the Company, IWLG and ICIFC
                        -----------------------------------



       1.   The Company and each of its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full power and authority to conduct all
the activities conducted by it, to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration Statement and
the Prospectus.  The Company is the sole record owner and to our knowledge the
sole beneficial owner of all of the capital stock of IWLG and all of the
Preferred Stock of ICIFC to the extent and as described in the Prospectus.

       2.   All of the outstanding shares of Common Stock and the shares of
capital stock of the Subsidiaries have been, and the Shares, when paid for by
the Underwriters in accordance with the terms of the Agreement will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right under (i) the statutes, judicial and
administrative decisions and the rules and regulations of the governmental
agencies of the states of Maryland or California, (ii) the Company's or such
Subsidiaries' charter or by-laws or (iii) any instrument, document, contract or
other agreement referred to in the Registration Statement or any instrument,
document, contract or agreement filed as an exhibit to the
<PAGE>
 
                                                                               2

Registration Statement.  Except as described in the Registration Statement or
the Prospectus, to our knowledge, there is no commitment or arrangement to
issue, and there are no outstanding options, warrants or other rights calling
for the issuance of, any share of capital stock of the Company or any Subsidiary
to any person or any security or other instrument that by its terms is
convertible into, exercisable for or exchangeable for capital stock of the
Company.

       3.   The number of authorized, issued and outstanding capital stock of
the Company is as set forth in the Registration Statement and the Prospectus
under the caption "Capitalization."  The description of the Common Stock and the
preferred stock of ICIFC contained in the Prospectus conforms to the terms
thereof contained in the charter of the Company and ICIFC, respectively, and is
complete and accurate in all material respects.  The form of certificate used to
represent the Common Stock is in due and proper form and complies with all
applicable statutory requirements.

       4.   The Registration Statement and the Prospectus comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial and statistical data contained in the Registration
Statement or the Prospectus).
<PAGE>
 
                                                                               3

       5.  To our knowledge, any instrument, document, lease, license, contract
or other agreement (collectively, "Documents") required to be described or
referred to in the Registration Statement or the Prospectus has been properly
described or referred to therein and any Document required to be filed as an
exhibit to the Registration Statement has been filed as an exhibit thereto; and
no default exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any Document filed or
required to be filed as an exhibit to the Registration Statement.

       6.  To our knowledge, except as disclosed in the Registration Statement
or the Prospectus, no person or entity has the right to require the registration
under the Act of shares of Common Stock or other securities of the Company or
ICIFC by reason of the filing or effectiveness of the Registration Statement.

       7.  To our knowledge, none of the Company and any of its Subsidiaries is
in violation of its charter or by-laws or in violation of, or in default with
respect to, any law, rule, regulation, order, judgment or decree, except as may
be described in the Prospectus or such as in the aggregate do not have a
material adverse effect upon the operations, business or assets of the Company
and any of the Subsidiaries, taken as a whole.
<PAGE>
 
                                                                               4

       8.  All descriptions in the Prospectus of statutes, regulations or legal
or governmental proceedings are accurate and present in all material respects
the information required to be shown, including those contained in the
Prospectus under the captions "Business--Regulation," "Business--Legal
Proceedings," "Certain Provisions of Maryland Law and of the Company's Charter
and By-laws," "Federal Income Tax Considerations," "ERISA Investors" and "Shares
Available for Future Sale."

       9.   The Company has full corporate power and authority to enter into the
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company, is a valid and binding agreement of the Company and is enforceable
against the Company in accordance with the terms thereof, except for the
indemnification and contribution provisions thereof, as to which we express no
opinion, and except as may be limited by applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights generally and
moratorium laws in effect from time to time and by equitable principles
restricting the availability of equitable remedies.

       10.  The execution and delivery by the Company of, and the performance by
the Company of its agreements in, the Agreement do not and will not (i) violate
the charter or by-laws of the Company, (ii) breach or result in a default under,
cause the time for performance of any obligation to
<PAGE>
 
                                                                               5

be accelerated under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms or provisions of, (x) any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement, capital lease or other evidence of indebtedness of
which we have knowledge, (y) any voting trust arrangement or any contract or
other agreement that restricts the ability of the Company to issue securities
and of which we have knowledge or (z) any Document filed as an exhibit to the
Registration Statement, (iii) breach or otherwise violate any existing
obligation of the Company under any court or administrative order, judgment or
decree of which we have knowledge or (iv) violate applicable provisions of any
statute or regulation in the states of California or Maryland or the United
States.

       11.  No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of the Agreement by the Company or in connection with the taking by
the Company of any action contemplated thereby or, if so required, all such
consents, approvals, authorizations and orders, have been obtained and are in
full force and effect, except such as have been
<PAGE>
 
                                                                               6

obtained under the Act and the Rules and Regulations and such as may be required
under state securities or Blue Sky laws or by the by-laws and rules of the NASD
in connection with the purchase and distribution by the Underwriters of the
Shares.  All references in this opinion to the Agreement shall include the Price
Determination Agreement.

       12.  Delivery of certificates for the Shares will transfer valid and
marketable title thereto to each Underwriter that has purchased such Shares in
good faith and without any notice of any adverse claim with respect thereto,
except for any defects therein resulting solely from any action taken by an
Underwriter.

       13.  None of the Company and any of its Subsidiaries is, and if operated
in the manner described in the Prospectus under the caption "Business" will be,
(i) an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act or (ii) a "broker" within the meaning of Section
3(a)(4) of the Exchange Act or a "dealer" within the meaning of Section 3(a)(5)
of the Exchange Act or required to be registered pursuant to Section 15(a) of
the Exchange Act.

       14.  The Shares have been duly authorized for listing by the American
Stock Exchange upon official notice of issuance.
<PAGE>
 
                                                                               7

       We hereby confirm to you that we have been advised by the Commission that
the Registration Statement has become effective under the Act and that no order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is threatened, pending or
contemplated.

       We hereby further confirm to you that there are no actions, suits,
proceedings or investigations pending or, to our knowledge, overtly threatened
in writing against the Company or any of its Subsidiaries or any of their
respective officers or directors in their capacities as such, before or by any
court, governmental agency or arbitrator which (i) seek to challenge the
legality or enforceability of the Agreement, (ii) seek to challenge the legality
or enforceability of any of the Documents filed, or required to be filed, as
exhibits to the Registration Statement, (iii) seek damages or other remedies
with respect to any of the Documents filed, or required to be filed, as exhibits
to the Registration Statement, (iv) except as set forth in or contemplated by
the Registration Statement and the Prospectus, seek money damages from the
Company or any of its Subsidiaries in excess of $1,000,000 or seek to impose
criminal penalties upon the Company, any of its Subsidiaries or any of their
respective officers or directors in their capacities as such and of which we
have knowledge or (v) seek to enjoin any of the business
<PAGE>
 
                                                                               8

activities of the Company or any of its Subsidiaries or the transactions
described in the Prospectus and of which we have knowledge.

       We have participated in the preparation of the Registration Statement and
the Prospectus and, without assuming any responsibility for the accuracy,
completeness and fairness of the statements contained in the Registration
Statement or the Prospectus or any amendment or supplement thereto, nothing has
come to our attention that causes us to believe that, both as of the Effective
Date and as of the Closing Date and the Option Closing Date, the Registration
Statement, or any amendment thereto, contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that any Prospectus or any amendment or supplement thereto, at the time such
Prospectus was issued, at the time any such amended or supplemented Prospectus
was issued, at the Closing Date and the Option Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances in which they were made not misleading (except that we express
no opinion as to financial statements, schedules and other financial or
statistical data contained in the Registration Statement or the Prospectus).
<PAGE>
 
                                                                               9

       In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable
to Underwriters' counsel as to matters governed by the laws of jurisdictions
other than the United States and the State of California, and as to matters of
fact, upon certificates of officers of the Company and of government officials;
provided that such counsel shall state that the opinion of any other counsel is
in form satisfactory to such counsel and, in such counsel's opinion, such
counsel and the Representatives are justified in relying on such opinions of
other counsel.  Copies of all such opinions and certificates shall be furnished
to counsel to the Underwriters on the Closing Date.

<PAGE>
 
                                                                     EXHIBIT 5.1

          [LETTERHEAD OF FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN]

                               November 1, 1996



Imperial Credit Mortgage Holdings, Inc.
20371 Irvine Avenue
Santa Ana Heights, CA 92707

            Re:  Imperial Credit Mortgage Holdings, Inc.
                 Registration Statement on Form S-11
                 SEC File No. 333-14873

Dear Sir/Madam:

At your request, we have examined the Registration Statement on Form S-11 (File
No. 333-14873) of Imperial Credit Mortgage Holdings, Inc., a Maryland
corporation (the "Company"), together with Amendment No. 1, the latter of which
was filed on November 4, 1996 thereto (the "Registration Statement"), exhibits
filed or to be filed in connection therewith and the form of prospectus
contained therein, which you have filed with the Securities and Exchange
Commission ("SEC") in connection with the registration of 2,500,000 shares of
Common Stock $.01 par value per share (the "Common Stock"), of the Company of
which up to 375,000 shares may be purchased to cover over-allotments, if any
(the "Option Stock") (together, the Common Stock and the Option Stock are the
"Shares"). The Shares are to be sold to PaineWebber Incorporated, Oppenheimer &
Co., Inc., Stifel, Nicolaus & Company Incorporated, and EVERN Securities, Inc.
as the representatives of the several underwriters (the "Underwriters") pursuant
to an underwriting agreement to be entered into by and among the Company and the
Underwriters (the "Underwriting Agreement").

This opinion is delivered in accordance with the requirements of Item 601(b)(5)
of Regulation S-K under the Securities Act of 1933, as amended.

For purposes of this opinion, we have examined such matters of law and 
originals, or copies, certified or otherwise, identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed 
necessary.  In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified,
photostatic or conformed copies, and the authenticity of the originals of all
such latter documents. We have also assumed the due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have relied upon certificates of public officials and
certificates of officers of

<PAGE>
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 2



the Company for the accuracy of material, factual matters contained therein
which were not independently established.

Based upon the foregoing and all other instruments, documents and matters
examined for the rendering of this opinion, it is our opinion that:

     (1) subject to effectiveness of the Registration Statement with the SEC
(such Registration Statement as amended and finally declared effective, and the
form of Prospectus contained therein or subsequently filed pursuant to Rule 430A
or 424 under the Securities Act of 1933, as amended, being hereinafter referred
to as the "Registration Statement" and the "Prospectus", respectively) and to
registration or qualification under the securities laws of the states in which
the securities may be sold, upon the sale and issuance of the Shares in the
manner referred to in the Registration Statement and in accordance with the
terms of the Underwriting Agreement, and upon payment therefor, the Shares will
be legally issued, fully paid and nonassessable shares of the Common Stock of
the Company.

With respect to the opinion set forth above, we have relied upon the opinion of 
Ballard Spahr Andrews & Ingersoll, dated the date hereof, a copy of which has 
been delivered to you, as to matters of Maryland law.

We express no opinion as to the applicability or effect of any laws, orders or
judgments of any state or jurisdiction other than federal securities laws and
the substantive laws of the State of California. Further, our opinion is based
solely upon existing laws, rules and regulations, and we undertake no obligation
to advise you of any changes that may be brought to our attention after the date
hereof.

We consent to the use of our name under the caption "Legal Matters", in the 
Prospectus, constituting part of the Registration Statement, and to the filing 
of this opinion as an exhibit to the Registration Statement.

By giving you this opinion and consent, we do not admit that we are experts with
respect to any part of the Registration Statement or Prospectus within the 
meaning of the term "expert" as used in Section 11 of the Securities Act of 
1933, as amended, or the rules and




























<PAGE>
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 3



regulations promulgated thereunder by the SEC, nor do we admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.

                                Very truly yours,



                                /s/ FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
                                -----------------------------------------------
                                Freshman, Marantz, Orlanski, Cooper & Klein


Enclosures









<PAGE>
 
                                                                     EXHIBIT 5.2

               [LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]


                               November 1, 1996


Imperial Credit Mortgage Holdings, Inc.
20371 Irvine Avenue
Santa Ana Heights, California 92707

          Re:  Registration Statement on Form S-11
               Registration No. 333-14873
               -----------------------------------

Ladies and Gentlemen:

          We have served as Maryland counsel to Imperial Credit Mortgage
Holdings, Inc., a Maryland corporation (the "Company"), in connection with
certain matters of Maryland law arising out of the registration of up to
2,875,000 shares of Common Stock, $.01 par value per share, of the Company (the
"Shares") (including 375,000 shares pursuant to an over-allotment option granted
to the underwriters), covered by the above-referenced Registration Statement,
and all amendments thereto (the "Registration Statement"), under the Securities 
Act of 1933, as amended (the "1933 Act").  Unless otherwise defined herein, 
capitalized terms used herein shall have the meanings assigned to them in the 
Registration Statement.

          In connection with our representation of the Company, and as a basis 
for the opinion hereinafter set forth, we have examined originals, or copies 
certified or otherwise identified to our satisfaction, of the following 
documents (hereinafter collectively referred to as the "Documents"):

          1.  The Registration Statement and the related form of final 
prospectus included therein in the form in which it was transmitted to the 
Securities and Exchange Commission under the 1933 Act;

          2.  The charter of the Company, certified as of a recent date by the 
State Department of Assessments and Taxation of Maryland (the "SDAT");

<PAGE>
 
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 2



          3.  The Amended and Restated Bylaws of the Company, certified as of a
recent date by its Secretary;

          4.  Resolutions adopted by the Board of Directors and stockholders of 
the Company relating to the sale, issuance and registration of the Shares, 
certified as of a recent date by the Secretary of the Company;

          5.  The form of certificate representing a Share;

          6.  A certificate of the SDAT as to the good standing of the Company, 
dated November 1, 1996;

          7.  A certificate executed by William S. Ashmore, President and Chief 
Operating Officer of the Company, dated November 1, 1996; and

          8.  Such other documents and matters as we have deemed necessary or 
appropriate to express the opinion set forth in this letter, subject to the 
assumptions, limitations and qualifications stated herein.

          In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:

          1.  Each of the parties (other than the Company) executing any of the 
Documents has duly and validly executed and delivered each of the Documents to 
which such party is a signatory, and such party's obligations set forth therein 
are legal, valid and binding.

          2.  Each individual executing any of the Documents on behalf of a 
party (other than the Company) is duly authorized to do so.

          3.  Each individual executing any of the Documents is legally 
competent to do so.

          4.  All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine.  All
public records reviewed or relied upon by us or on our behalf are true and
complete.  All statements and information contained in the Documents are true 
and complete.  There are no oral or written modifications or amendments to the 
Documents, by action or conduct of the parties or otherwise.









<PAGE>
 
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 3



          The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal 
services in connection with the issuance of this opinion.

          Based upon the foregoing, and subject to the assumptions, limitations 
and qualifications stated herein, it is our opinion that:

          1.  The Company is a corporation duly incorporated and existing under 
and by virtue of the laws of the State of Maryland and is in good standing with 
the SDAT.

          2.  The Shares have been duly and validly authorized and, when and if 
delivered against payment therefor in accordance with the resolutions of the 
Board of Directors of the Company authorizing their issuance, will be duly and 
validly issued, full paid and nonassessable.

          The foregoing opinion is limited to the laws of the State of Maryland 
and we do not express any opinion herein concerning any other law.  We express 
no opinion as to compliance with the securities (or "blue sky") laws or the real
estate syndication laws of the State of Maryland.

          We assume no obligation to supplement this opinion if any applicable 
law changes after the date hereof or if we become aware of any fact that might 
change the opinion expressed herein after the date hereof.

          This opinion is being furnished to you solely for submission to the
Securities and Exchange Commission as an exhibit to the Registration Statement
and, accordingly, may not be relied upon by, quoted in any manner to, or
delivered to any other person or entity (other than Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to the Company) without, in each instance, our prior
written consent.



<PAGE>
 
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 4



          We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein.  In 
giving this consent, we do not admit that we are within the category of persons 
whose consent is required by Section 7 of the 1933 Act.

                                           Very truly yours,


                                           /s/ Ballard Spahr Andrews & Ingersoll

                                           Ballard Spahr Andrews & Ingersoll

<PAGE>
 
                                                                     EXHIBIT 8.1

                       [LETTERHEAD OF LATHAM & WATKINS]

                               November 1, 1996


Imperial Credit Mortgage Holdings, Inc.
20371 Irvine Avenue
Santa Ana Heights, California 92707

     Re:  Registration Statement on Form S-11
          -----------------------------------

Ladies and Gentlemen:

     We have acted as tax counsel to Imperial Credit Mortgage Holdings, Inc., a 
Maryland corporation (the "Company"), in connection with the sale by the Company
of up to 2,875,000 shares of common stock ("Common Stock"), par value $.01 per 
share of the Company, registered under the Securities Act of 1933, as amended, 
pursuant to a registration statement on Form S-11 (File No. 333-14873) filed 
with the Securities and Exchange Commission (the "Commission") on October 25, 
1996, as amended by Amendment No. 1 thereto, filed with the Commission on 
November 4, 1996 (the "Registration Statement").  You have requested our opinion
concerning certain of the federal income tax consequences to the Company and the
purchasers of Common Stock in connection with the sale described above.  This 
opinion is based on various facts and assumptions, including the facts set forth
in the Registration Statement concerning the business, assets and governing 
documents of the Company.  We have also been furnished with, and with your 
consent have relied upon, certain representations made by the Company with 
respect to certain factual matters through a certificate of an officer of the 
Company (the "Officer's Certificate").  Furthermore, this opinion relies on, and
assumes the accuracy of, the opinion of Thacher Proffitt & Wood with respect to 
the characterization, as debt, of the collateralized mortgage obligations issued
by Imperial CMB Trust Series 1996-1 ("CMB Trust") on behalf of IMH Assets Corp. 
in August 1996, and with respect to the classification of CMB Trust for federal 
income tax purposes.
<PAGE>
 
Imperial Credit Mortgage Holdings, Inc.
November 1, 1996
Page 2


     As tax counsel to the Company, we have made such legal and factual 
examinations and inquiries, including an examination of originals or copies 
certified or otherwise identified to our satisfaction of such documents, 
corporate records and other instruments as we have deemed necessary or 
appropriate for purposes of this opinion. In our examination, we have assumed 
the authenticity of all documents submitted to us as originals, the genuineness 
of all signatures thereon, the legal capacity of natural persons executing such 
documents and the conformity to authentic original documents of all documents 
submitted to us as copies.

     We are opining herein as to the effect on the subject transaction only of 
the federal income tax laws of the United States and we express no opinion with 
respect to the applicability thereto, or the effect thereon, of other federal 
laws, the laws of any other jurisdiction or as to any matters of municipal law 
or the laws of any other local agencies within any state.

     Based on such facts, assumptions and representations, it is our opinion 
that the statements in the Registration Statement set forth under the caption 
"Federal Income Tax Considerations" to the extent such information constitutes 
matters of law, summaries of legal matters, or legal conclusions, have been 
reviewed by us and are accurate in all material respects.

     No opinion is expressed as to any matter not discussed herein.

     This opinion is based on various statutory provisions, regulations 
promulgated thereunder and interpretations thereof by the Internal Revenue 
Service and the courts having jurisdiction over such matters, all of which are 
subject to change either prospectively or retroactively. Also, any variation or 
difference in the facts from those described above (including those set forth in
the Registration Statement and the Officer's Certificate) may affect the 
conclusions stated herein.

     This opinion is rendered only to you and is solely for your use in 
connection with the Registration Statement. We hereby consent to the filing of 
this opinion as an exhibit to the Registration Statement and to the use of our 
name under the captions "Federal Income Tax Considerations" and "Legal Matters" 
in the Registration Statement. This opinion may not be relied upon by you for 
any other purpose, or furnished to, quoted to, or relied upon by any other 
person, firm or corporation for any purpose, without our prior written consent.

                                       Very truly yours,


                                       /s/ Latham & Watkins
                                       
                                       Latham & Watkins


<PAGE>
                                                                    EXHIBIT 21.1

                        SUBSIDIARIES OF THE REGISTRANT


Imperial Warehouse Lending Group, Inc.

ICI Funding Corp. (all of the non-voting, convertible preferred stock owned by 
the Registrant).

IMH Assets Corp.


<PAGE>
 
                                                                   EXHIBIT 23.4
 
The Board of Directors
Imperial Credit Mortgage Holdings, Inc.:
 
  We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus. Our report dated January 25, 1996 contains an explanatory
paragraph stating the Company adopted the provisions of Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" for
the year ended December 31, 1995.
 
                                          /s/ KPMG PEAT MARWICK LLP
 
                                          KPMG Peat Marwick LLP
 
Orange County, California
   
November 1, 1996     

<PAGE>
 
                                                                   EXHIBIT 23.5
 
The Board of Directors
ICI Funding Corporation:
 
  We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus. Our report dated January 25, 1996 contains an explanatory
paragraph stating the Company adopted the provisions of Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" for
the year ended December 31, 1995.
 
                                          /s/ KPMG PEAT MARWICK LLP
 
                                          KPMG Peat Marwick LLP
 
Orange County, California
   
November 1, 1996     


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