DELTA FINANCIAL CORP
PLEDGE AND SECURITY AGREEMENT DELTA FUNDING CORP
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>PLEDGE AND SECURITY AGREEMENT DELTA FUNDING CORP
<TEXT>

THIS AGREEMENT IS SUBJECT TO AN INTERCREDITOR AND SUBORDINATION  AGREEMENT DATED
AS OF THE DATE HEREOF (THE  "INTERCREDITOR  AGREEMENT")  BY AND AMONG U.S.  BANK
TRUST NATIONAL  ASSOCIATION,  AS AGENT,  DELTA FUNDING  CORPORATION,  A NEW YORK
CORPORATION,  DF SPECIAL HOLDINGS CORPORATION,  A DELAWARE CORPORATION,  GOLDMAN
SACHS MORTGAGE COMPANY,  A NEW YORK LIMITED  PARTNERSHIP,  AND GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC., A DELAWARE CORPORATION,  WHICH MATERIALLY SUBORDINATES
CERTAIN  SECURITY  INTERESTS AND LIENS,  AND LIMITS  ENFORCEMENT OF RIGHTS UNDER
THIS  AGREEMENT.   ALL  PERSONS  OR  OTHER  ENTITIES  WHICH  AT  ANY  TIME  HOLD
INDEBTEDNESS WHICH IS SECURED HEREBY ARE BOUND BY THE TERMS OF THE INTERCREDITOR
AGREEMENT, WHICH WILL BE MADE AVAILABLE UPON REQUEST TO ANY PARTY HERETO.

                                PLEDGE AGREEMENT

                  PLEDGE AND SECURITY  AGREEMENT dated as of March 16, 2001 made
by DELTA FUNDING CORPORATION,  a New York corporation (the "PLEDGOR"),  in favor
of U.S. BANK TRUST NATIONAL  ASSOCIATION,  as trustee and collateral  agent (the
"AGENT"), under that certain Indenture dated as of December 21, 2000, as amended
(the "INDENTURE") among DELTA FINANCIAL  CORPORATION  ("DELTA"),  as issuer, the
parties whose names and signatures  appear on the signature  pages thereto under
the heading "Subsidiary Guarantors" and the Agent.

                              W I T N E S S E T H:

                  WHEREAS,  the Pledgor is a party to that certain Deposit Trust
Agreement  dated as of December 22, 2000 (the "DEPOSIT TRUST  AGREEMENT") by and
between the Pledgor,  as depositor,  and Wilmington  Trust  Company,  a Delaware
banking corporation, as owner trustee;

                  WHEREAS,  in connection with the execution and delivery of the
Indenture,  the  Pledgor  transferred  to the Trust (as defined  below)  certain
residual receivables, including the Pledged Residuals (as defined below);

                  WHEREAS,  the Holders of a majority in principal amount of the
Senior  Notes have  agreed  that the  Pledgor  may  withdraw  from the Trust the
Pledged  Residuals  and grant to the Senior  Lenders (as defined  below) a first
priority security interest in the Pledged Residuals; and

                  WHEREAS,  as an  inducement  to the  Holders to consent to the
release of the  Pledged  Residuals  from the Trust and the  granting  of a first
priority security interest therein to the Senior Lenders, Pledgor and Agent have
entered into this Agreement.

                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
agreements  herein and of other good and  valuable  consideration,  the  Pledgor
hereby agrees with the Agent as follows:

                  SECTION 1. DEFINITIONS. As used in this Agreement, capitalized
terms  used  herein  without  definition  have  the  meanings  specified  in the
Indenture or if not defined in the Indenture,  then in Article 8 or Article 9 of
the Uniform Commercial Code (the "CODE") currently in effect in the State of New
York, and the following terms shall have the following meanings:

                  "GOVERNMENTAL  AUTHORITY" shall mean any nation or government,
any federal, state, city, town,  municipality,  county, local or other political
subdivision thereof or thereto and any department,  commission,  board,  bureau,
instrumentality,  agency  or other  entity  exercising  executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government.

                  "PLEDGED RESIDUALS" shall mean the  residual  receivables  set
forth on Schedule I.

                  "SENIOR LENDERS" shall mean,  collectively, Greenwich  Capital
Financial Products, Inc. and Goldman Sachs Mortgage Company.

                  "SENIOR LIEN" shall mean the security  interest granted to the
Senior Lenders pursuant to the Senior Loan Agreement.

                  "SENIOR  LIEN  TERMINATION  DATE" shall mean the date on which
the Senior Lien is terminated.

                  "SENIOR LOAN AGREEMENT" shall  mean  that  certain Master Loan
and Security Agreement  dated  as  of  September  30, 1999  by and between Delta
Funding Corporation, Greenwich Capital Financial Products,Inc. and Goldman Sachs
Mortgage Company, as amended.

                  "TRUST" shall mean Delta Funding Residual Holding Trust 2000-2
established under the Deposit Trust Agreement.

                  SECTION  2.  PLEDGE  AND  GRANT  OF  SECURITY   INTEREST.   As
collateral security for all of the Obligations (as defined in Section 3 hereof),
the Pledgor hereby pledges and collaterally  assigns to the Agent, and grants to
the Agent a continuing  security interest in, all of the Pledgor's right,  title
and  interest in and to the Pledged  Residuals,  whether now owned or  hereafter
acquired by the Pledgor and howsoever  its interest  therein may arise or appear
(whether by ownership,  security interest,  claim or otherwise) and all Proceeds
of any and all of the foregoing (the "PLEDGED COLLATERAL").

                  SECTION 3.  SECURITY FOR  OBLIGATIONS.  The security  interest
created  hereby  in the  Pledged  Residuals  constitutes  continuing  collateral
security for all of the following  obligations whether now existing or hereafter
incurred (collectively, the "OBLIGATIONS"):

                  (a) the due and punctual  payment of any  and all amounts  due
and owing by  the Pledgor under the Subsidiary Guarantee to which the Pledgor is
a party;

                  (b) the  due performance and observance by the Pledgor of  all
of its other obligations from time to time existing in respect of the Indenture,
the  Senior  Notes, the Collateral Agreements and  the  Related Agreements;  and

                  (c) all  fees, costs,  charges  and  expenses paid or incurred
by  the  Agent  in  connection  with  the  creation, protection and preservation
or enforcement of its rights under any of the Indenture, the  Senior Notes,  the
Subsidiary  Guarantees,  the  Collateral  Agreements and the Related Agreements,
on a full indemnity basis.

                  SECTION 4.  REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants as follows:

                  (a) The   Pledged   Residuals  have   been  duly   authorized,
executed and delivered by the respective  issuers thereof,  and all such Pledged
Residuals are legal, valid and binding obligations of such issuers,  enforceable
against  such   issuers  in   accordance   with  their  terms,   subject  as  to
enforceability to applicable bankruptcy, insolvency,  reorganization and similar
laws affecting creditors' rights and to general principles of equity.

                  (b) It is  the legal  and   beneficial  owner  of  the Pledged
Residuals free and clear of any Lien, security interest,  option or other charge
or encumbrance  except for the Senior Lien and the security  interest created by
this Agreement.

                  (c) The  exercise  by  the  Agent  of  any  of its  rights and
remedies  hereunder  does not  contravene  any law or any  material  contractual
restriction  binding on or affecting it or any of its  properties,  and will not
result in or require the creation of any Lien, security interest or other charge
or encumbrance upon or with respect to any of its properties other than pursuant
to this Agreement or other Collateral Agreements.

                  (d) No  authorization or approval  or  other  action  by,  and
no notice to or filing  with,  any  Governmental  Authority  is  required  to be
obtained or made by it for (i) the due  execution,  delivery and  performance of
this  Agreement,  (ii) the grant, or the  perfection,  of the security  interest
purported to be created hereby in the Pledged  Residuals,  or (iii) the exercise
by the Agent of its rights  and  remedies  hereunder,  except (A) for the filing
under  the  Code of UCC-1  Financing  Statements  in the  offices  set  forth in
Schedule II hereto and (B) as may be required in connection with any sale of any
Pledged  Residuals  by laws  affecting  the  offering  and  sale  of  securities
generally.

                  (e) This  Agreement  creates  a  valid  security  interest  in
favor of the Agent in the Pledged  Residuals,  as security for the  Obligations.
The  filing  under the Code of the UCC-1  Financing  Statements  in the  offices
described in Schedule II hereto will result in the  perfection  of such security
interest in the Pledged  Residuals.  The security  interest  granted hereby is a
perfected,  second priority security interest. After the Senior Lien Termination
Date  such  security  interest  will be a  perfected,  first  priority  security
interest. All action necessary to perfect and protect such security interest has
been duly taken,  except for the Agent's or the  Agent's  custodian,  nominee or
other designee) having possession of the Pledged Residuals after the Senior Lien
Termination Date.

                  (f) There is no pending or ,  to  the  best of its  knowledge,
threatened  action,  suit,  proceeding  or  claim  before  any  court  or  other
Governmental Authority or any arbitrator, or any order, judgment or award by any
court or other Governmental  Authority or arbitrator,  that may adversely affect
the grant or the  perfection  of the security  interest  purported to be created
hereby in the  Pledged  Residuals,  or the  exercise  by the Agent of any of its
rights or remedies hereunder.

                  SECTION 5. COVENANTS AS TO THE PLEDGED  RESIDUALS.  So long as
any Obligations  shall remain  outstanding,  the Pledgor will,  unless the Agent
shall otherwise consent in writing:

                  (a) keep adequate records concerning the Pledged Residuals and
permit  the Agent or any agents or  representatives  thereof at any time or from
time to time to examine and make copies of and abstracts  from such records;

                  (b) at its expense, upon the request of  the  Agent,  promptly
deliver  to  the  Agent  a copy  of  each material notice or other communication
received by it in respect of the Pledged Residuals;

                  (c) at  its  expense, defend  the  Agent's  right,  title  and
security interest in and to  the Pledged  Residuals  against the  claims  of any
Person;

                  (d) at  its  expense,  at  any time  and from  time  to  time,
promptly execute and deliver all further  instruments and documents and take all
further action that may be necessary or that the Agent may reasonably request in
order to (i) perfect and protect the security  interest  purported to be created
hereby,  (ii) enable the Agent to exercise  and enforce its rights and  remedies
hereunder in respect of the Pledged  Residuals,  or (iii)  otherwise  effect the
purposes of this Agreement,  including,  without  limitation,  delivering to the
Agent,  after the occurrence and during the continuation of an Event of Default,
irrevocable proxies in respect of the Pledged Residuals;

                  (e) not  sell, assign (by operation of law or otherwise),
exchange or otherwise  dispose of any Pledged  Residuals or any interest therein
except  for  sales,  assignments,  exchanges  or other  dispositions  of Pledged
Residuals permitted under the Intercreditor Agreement and Section 14(f) hereof;

                  (f) not  create  or   suffer  to  exist   any Lien,   security
interest  or other  charge or  encumbrance  upon or with  respect to any Pledged
Residuals except for the Senior Lien and the security interest created hereby;

                  (g) not  make  or   consent   to   any   amendment   or  other
modification  or waiver with respect to any Pledged  Residuals or enter into any
agreement  or  permit to exist  any  restriction  with  respect  to any  Pledged
Residuals  other than  pursuant  to the  Collateral  Agreements  and  applicable
securities laws; and

                  (h) not  take  or fail to take any action  which  would in any
manner materially impair the enforceability of the Agent's security interest  in
any Pledged Residuals.

                  SECTION 6. VOTING RIGHTS, DISTRIBUTIONS, AGENT'S CONSENT, ETC.
IN RESPECT OF THE PLEDGED RESIDUALS.

                  (a) So long as no Event of Default shall have occurred and  be
                   continuing:

                           (i)  the Pledgor may exercise any and all  voting and
other consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent  with the terms of  this Agreement, the Indenture, the Senior Notes
or the other Collateral Agreements;

                           (ii) the Pledgor may receive  and  retain any and all
interest, cash, instruments, distributions and other  property  paid in  respect
of the  Pledged  Residuals whether  now  owned or hereafter acquired,  and   the
proceeds of any of the foregoing, except  after the occurrence of and during the
continuance of an Event of a Default;

                          (iii) the Agent  will execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies and other instruments
as the Pledgor may reasonably request in writing for the purpose of enabling the
Pledgor to exercise the voting and other rights which it is entitled to exercise
pursuant to paragraph (i) of  this  Section 6(a)  and  to  receive the dividends
which it is authorized to receive  and retain pursuant to paragraph (ii) of this
Section 6(a); and

                           (iv) the  Agent  will not  consent  to any  action or
proposed action under this Agreement  without  obtaining  the prior  consent  of
the  Holders or  Beneficial Holders of a majority of the principal amount of the
then  outstanding  Senior Notes.

                  (b) Upon the occurrence and during the continuance of an Event
                   of Default:

                           (i)  all rights of the Pledgor to exercise the voting
and other consensual rights which it would  otherwise  be  entitled  to exercise
pursuant to  paragraph (i) of subsection (a) of this Section 6, and to  receive
the distributions and interest payments which it would  otherwise be  authorized
to  receive and  retain  pursuant to  paragraph (ii) of  subsection (b) of  this
Section 6, shall cease, and all such rights shall thereupon become vested in the
Agent which  shall thereupon  have the sole right  to exercise  such voting  and
other  consensual  rights and to receive and  hold  as  Pledged  Collateral such
dividends and interest payments;

                           (ii) without   limiting   the    generality  of   the
foregoing,  the  Agent  may at  its  option  exercise  any  and  all  rights  of
conversion,  exchange,  subscription or any other rights,  privileges or options
pertaining to any of the  Pledged Residuals as if  it were  the  absolute  owner
thereof; and

                           (iii) all  distributions  and  interest  payments  or
other cash which are  received  by  the Pledgor  contrary to the  provisions  of
paragraph  (i) of this Section 6(b) shall be  received in trust for the  benefit
of the Agent, shall be  segregated from other funds of the Pledgor, and shall be
forthwith   paid  over  to  the  Agent  as Pledged Collateral in the exact form
received with any necessary endorsement and/or appropriate  transfer  forms duly
executed in blank,  to be  held  by  the Agent  as  Pledged  Collateral  and  as
further  collateral  security  for  the Obligations.

                  SECTION 7.  ADDITIONAL PROVISIONS CONCERNING THE PLEDGED
RESIDUALS.

                  (a) The Pledgor hereby  authorizes the  Agent to file, without
the  signature  of the  Pledgor  where  permitted  by law, one or more financing
or continuation  statements,  and  amendments  thereto,  relating to the Pledged
Residuals.

                  (b) The Pledgor hereby  irrevocably  appoints  the  Agent  the
Pledgor's attorney-in-fact and proxy, with full authority in the place and stead
of the Pledgor and in the name of the Pledgor or otherwise, from time to time in
the Agent's  discretion  exercised  reasonably and during the  continuance of an
Event of  Default,  to take any action and to execute any  instrument  which the
Agent may deem  necessary or reasonably  advisable to accomplish the purposes of
this Agreement (subject to the rights of the Pledgor under Section 6(a) hereof).

                  (c) After the  occurrence and  during  the continuance  of  an
Event of Default,  if the Pledgor  fails to perform any  agreement or obligation
contained  herein,  the Agent itself may perform,  or cause performance of, such
agreement or  obligation,  and the expenses of the Agent  incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 10 hereof.

                  (d) Except  as  provided  in  Section  6(a)(iv),  other   than
the  exercise  of  reasonable  care to assure the safe  custody  of the  Pledged
Residuals  while held  hereunder,  the Agent shall have no duty or  liability to
preserve rights pertaining  thereto and shall be relieved of all  responsibility
for the Pledged Residuals upon  surrendering it or tendering  surrender of it to
the Pledgor.  The Agent shall be deemed to have exercised reasonable care in the
custody and  preservation  of the Pledged  Residuals  in its  possession  if the
Pledged Residuals is accorded  treatment  substantially  equal to that which the
Agent accords its own  property,  it being  understood  that the Agent shall not
have responsibility for (i) ascertaining or taking action with respect to calls,
conversions,  exchanges,  maturities,  tenders, or other matters relating to any
Pledged  Residuals,  whether or not the Agent has or is deemed to have knowledge
of such  matters,  or (ii) except as provided  in Section  6(a)(iv),  taking any
necessary  steps to preserve  rights  against any  parties  with  respect to any
Pledged Residuals.

                  (e) The Agent may at any time after the occurrence and  during
the  continuation of an Event of Default in its discretion (i) without notice to
the  Pledgor,  transfer or register  in  the name of  the Agent or  any  of  its
nominees any or all  of  the  Pledged  Residuals,  subject only to the revocable
rights of the Pledgor under Section 6(a) hereof, and (ii) exchange  certificates
or  instruments   constituting   such  Pledged  Residuals  for  certificates  or
instruments of smaller or larger denominations.

                  (f) In  the event  that  the  Agent  takes  possession  of any
Pledged  Residuals,  the  Agent  shall  at all  times  during  the  term of this
Agreement keep such Pledged Residuals within the State of New York.

                  SECTION 8. REMEDIES UPON EVENT OF DEFAULT.  If  any  Event  of
Default shall have occurred and be continuing:

                  (a) The Agent may exercise in respect of the Pledged Residuals
, in  addition to other  rights and  remedies  provided  for herein or otherwise
available  to  it, all  of the rights and remedies of a secured party on default
under the Code then in  effect  in  the  State of New York; and without limiting
the  generality  of  the foregoing and without notice except as specified below,
sell  the Pledged Residuals or any part thereof in one or more parcels at public
or  private  sale, at any exchange or broker's board or elsewhere, at such price
or prices  and  on  such  other  terms  as  the   Agent   may deem  commercially
reasonable.  The  Pledgor  agrees  that,  to the extent  notice of sale shall be
required by law, at least ten (10)  Business  Days' notice to the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made  shall  constitute  reasonable  notification.  The  Agent  shall  not be
obligated  to make any sale of Pledged  Residuals  regardless  of notice of sale
having been given. The Agent may adjourn any public or private sale from time to
time by announcement  at the time and place fixed  therefor,  and such sale may,
without  further  notice,  be made at the  time  and  place  to  which it was so
adjourned.

                  (b) The  Pledgor recognizes that it is impracticable to effect
a public  sale of all or any part of the Pledged  Residuals  and  that the Agent
may,  therefore,  determine  to  make  one  or more  private  sales  of any such
securities to a restricted  group of purchasers  who will be obligated to agree,
among other  things,  to acquire  such  securities  for their own  account,  for
investment  and not  with a view to the  distribution  or  resale  thereof.  The
Pledgor  acknowledges  that any such  private sale may be at prices and on terms
less  favorable  to the seller  than the prices and other terms which might have
been obtained at a public sale and,  notwithstanding the foregoing,  agrees that
such  private  sales  shall  be  deemed  to have  been  made  in a  commercially
reasonable  manner and that the Agent shall have no  obligation to delay sale of
any such  securities  for the period of time  necessary  to permit the issuer of
such securities to register such securities for public sale under the Securities
Act of 1933, as amended (the "SECURITIES ACT"). The Pledgor further acknowledges
and agrees that any offer to sell such  securities  which has been (i)  publicly
advertised on a BONA FIDE basis in a newspaper or other  publication  of general
circulation in the financial community of New York, New York (to the extent that
such  an  offer  may be so  advertised  without  prior  registration  under  the
Securities  Act), or (ii) made  privately in the manner  described  above to not
less than fifteen (15) BONA FIDE  offerees  shall be deemed to involve a "public
sale" for the  purposes  of Section  9-504(3) of the Code (or any  successor  or
similar,  applicable  statutory provision) as then in effect in the State of New
York,  notwithstanding  that such sale may not  constitute  a "public  offering"
under the  Securities  Act,  and that the Agent may, in such event,  bid for the
purchase of such securities.

                  (c) All cash proceeds received  by  the  Agent  in  respect of
any sale of,  collection from, or other realization upon, all or any part of the
Pledged  Residuals  shall be held by the Agent as collateral for, and/or then or
at any time  thereafter  applied  (after  payment of any amounts  payable to the
Agent  pursuant to Section 10 hereof) in whole or in part by the Agent  against,
all or any part of the  Obligations as directed by the Pledgor  consistent  with
the provisions of the Indenture.  Any surplus of such cash or cash proceeds held
by the Agent and remaining after payment in full of all of the Obligations shall
be paid over to the  Pledgor or to such  person as may be  lawfully  entitled to
receive such surplus.

                  (d) In  the  event  that  the   proceeds  of  any  such  sale,
collection or realization are insufficient to pay all amounts to which the Agent
is legally  entitled,  the Pledgor shall be liable for the deficiency,  together
with  interest  thereon at the highest  rate  specified  in the Senior Notes for
interest  on overdue  principal  thereof or such other rate as shall be fixed by
applicable  law,  together with the costs of collection and the reasonable  fees
and expenses of any attorneys employed by the Agent to collect such deficiency.

                  SECTION 9. INTERCREDITOR AGREEMENT.

                  (a) Notwithstanding  anything   to   the  contrary   in   this
Agreement, (i) the provisions of this Agreement shall in all respects be subject
to the Intercreditor  Agreement and (ii) the rights of the Agent and the payment
of all cash proceeds of any sale of, collection from or realization upon, all or
any  part  of  the  Pledged  Residuals  are  subject  to the  provisions  of the
Intercreditor Agreement.

                  (b) Within five (5) days  after  the  Senior  Lien Termination
Date,  the Pledgor shall ensure  that  all documents and  instruments evidencing
the Pledged Residuals which have not  previously  been  delivered  to  the Agent
shall be delivered to the Agent other than  documents  and  instruments relating
to the sale of the 1996-2 Residual described in Section 14(f).

                  SECTION 10.       INDEMNITY AND EXPENSES.

                  (a) The  Pledgor  agrees  to  indemnify  the  Agent  from  and
against any and all claims,  losses and liabilities  growing out of or resulting
from  this  Agreement  (including,  without  limitation,   enforcement  of  this
Agreement),  except  claims,  losses or  liabilities  resulting from the Agent's
gross  negligence or willful  misconduct as determined by a final  judgment of a
court of competent jurisdiction.

                  (b) The Pledgor shall  be  obligated  for, and  will  promptly
pay to the  Agent,  the  amount of any and all  reasonable  costs and  expenses,
including the reasonable  fees and  disbursements  of the Agent's counsel and of
any  experts and agents,  which the Agent may incur in  connection  with (i) the
administration  of  this  Agreement,  (ii)  the  custody,  preservation,  use or
operation of, or the sale of,  collection from, or other  realization  upon, any
Pledged Residuals, (iii) the exercise or enforcement of any of the rights of the
Agent hereunder, or (iv) the failure by any of the Pledgor to perform or observe
any of the provisions hereof.

                  SECTION 11. NOTICES, ETC. All notices and other communications
provided  for  hereunder  shall be in writing and shall be mailed (by  certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to the Pledgor,  to the address for the Pledgor specified in the Indenture,  and
if to the Agent,  to it at its  address  specified  in the  Indenture,  or as to
either such Person at such other  address as shall be  designated by such Person
in a written notice to such other Person complying as to delivery with the terms
of this Section 11. All such notices and other communications shall be effective
(i) if sent by certified mail, return receipt requested,  when received or three
(3) Business Days after  mailing,  whichever  first occurs,  (ii) if telecopied,
when  transmitted and  confirmation is received,  provided same is on a Business
Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided same is on a Business Day and, if not, on the next Business Day.

                  SECTION 12.       CONSENT TO JURISDICTION, ETC.

                  (a) Any  legal  action  or  proceeding  with  respect  to this
Agreement  or any document  related  thereto may be brought in the courts of the
State of New York located in the borough of Manhattan or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Agreement,  the Pledgor hereby accepts  unconditionally the jurisdiction of
the aforesaid  courts.  The Pledgor  hereby  irrevocably  waives any  objection,
including,  without limitation, any objection to the laying of venue or based on
the grounds of FORUM NON CONVENIENS, which the Pledgor may now or hereafter have
to  the  bringing  of  any  such  action  or  proceeding   in  such   respective
jurisdictions.

                  (b) The Pledgor irrevocably consents to the service of process
of  any  of  the  aforementioned  courts in any such action or proceeding by the
mailing  of  copies thereof by registered or certified mail, postage prepaid, to
the Pledgor at its address referred to in Section 11 hereof.

                  (c) Nothing contained  in  this  Section  12 shall  affect the
right of the Agent to serve legal  process in any other manner  permitted by law
or to commence legal proceedings or otherwise proceed against the Pledgor in any
other jurisdiction.

                  SECTION 13.  WAIVER OF JURY  TRIAL.  THE PLEDGOR AND THE AGENT
(BY ACCEPTING THIS AGREEMENT)  WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR  COUNTERCLAIM  CONCERNING  ANY RIGHTS UNDER THIS  AGREEMENT OR ANY
OTHER COLLATERAL  AGREEMENTS OR ARISING FROM ANY OTHER COLLATERAL  AGREEMENT AND
AGREE THAT ANY SUCH ACTION,  PROCEEDING OR COUNTERCLAIM  SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.

                  SECTION 14.  MISCELLANEOUS.

                  (a) No amendment of  any  provision of  this  Agreement  shall
be effective  unless it is in writing and signed by the  Pledgor,  the Agent and
the holders of more than 50% of the outstanding  principal  amount of the Senior
Notes,  and no waiver of any provision of this Agreement,  and no consent to any
departure by the Pledgor  therefrom,  shall be effective unless it is in writing
and  signed  by the Agent and the  holders  of more than 50% of the  outstanding
principal  amount of the Senior Notes,  and then such waiver or consent shall be
effective only in the specific  instance and for the specific  purpose for which
given.

                  (b) No failure  on  the  part  of  the Agent to exercise,  and
no delay in  exercising,  any right  hereunder or under any other document shall
operate as a waiver  thereof;  nor shall any single or partial  exercise  of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Agent provided herein are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by
law.  The rights of the Agent under any document  against any party  thereto are
not conditional or contingent on any attempt by the Agent to exercise any of its
rights under any other document against such party or against any other person.

                  (c) Any  provision  of  this Agreement  which  is   prohibited
or  unenforceable  in  any  jurisdiction  shall,  as to  such  jurisdiction,  be
ineffective  to the  extent  of such  prohibition  or  unenforceability  without
invalidating the remaining  portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

                  (d) This Agreement shall create a continuing security interest
in the Pledged Residuals and shall (i) subject to paragraphs (e) and (f) of this
Section 14, remain in full force and effect until the payment and performance in
full or release of the  Obligations  and the  termination of the Indenture,  and
(ii) be binding on the Pledgor  and  by  its  acceptance hereof, the  Agent, and
their  respective  successors  and  assigns  and  shall inure, together with all
rights  and  remedies  of the Agent  hereunder, to the  benefit of the  Pledgor,
the  Agent  and  their  respective  successors,  transferees  and  assigns.  The
Agent may resign at any time upon giving the Pledgor and the Trustee thirty (30)
days'  prior  written  notice.  The  Agent  shall  continue  to serve  until its
successor,  appointed by notice of the Pledgor, accepts appointment as successor
collateral  agent  and  receives  all  property  held by the  Agent  under  this
Agreement.  The holders of a majority  in  principal  amount of the  outstanding
Senior  Notes may at any time remove the Agent by so  notifying  the Pledgor and
the Agent and may appoint a successor agent with the Pledgor's consent, provided
that after the  occurrence of an Event of Default,  the Pledgor's  consent shall
not be required.

                  If the Agent  resigns or is removed or if a vacancy  exists in
the office of Agent for any reason, the Pledgor shall notify each Holder of such
event and the  holders of a majority  in  principal  amount of the Senior  Notes
shall  promptly  appoint a successor  Agent.  A successor  Agent shall deliver a
written acceptance of its appointment to the retiring Agent, the Trustee and the
Pledgor.  Immediately after that, the retiring Agent shall transfer all property
held  by  the  retiring  Agent  under  this  Agreement  to  the  successor,  the
resignation  or removal of the retiring  Agent shall become  effective,  and the
successor Agent shall have all the rights,  powers and duties of the Agent under
this  Agreement.  If a successor Agent does not take office within 60 days after
the retiring Agent resigns or is removed, the retiring Agent, the Pledgor or the
holders of at least 10% in principal amount of the outstanding  Senior Notes may
petition any court of competent jurisdiction, at the expense of the Pledgor, for
the  appointment of a successor  collateral  agent.  The terms and conditions of
this  Agreement  will  remain  unimpaired  by  resignation  of the  Agent or the
appointment  of a successor  collateral  agent.  Following the  appointment of a
successor  collateral  agent,  such person shall for all intents and purposes of
this  Agreement be the "Agent"  hereunder.  None of the rights or obligations of
the Pledgor hereunder may be assigned or otherwise transferred without the prior
written consent of the Agent.

                  (e) Upon the  earlier  of (i)  the  transfer  by Delta (or its
affiliates)  of  actual  servicing  for  the  entirety  of  the  mortgage  loans
underlying  residual  receivables  held in the Trust and those held in the Delta
Funding  Residual  Holding Trust 2000-1 to Ocwen  Federal Bank,  FSB (or another
third party  reasonably  satisfactory  to the holders of a majority in principal
amount  of the  Notes)  and  delivery  by  Delta to the  Agent  of an  officer's
certificate   certifying   that  such  transfer  has  been   completed  or  (ii)
satisfaction in full of Obligations  and the  termination of the Indenture,  (A)
this Agreement and the security  interest created hereby shall terminate and all
rights to the Pledged  Residuals shall revert to the Pledgor,  and (B) the Agent
will, upon the Pledgor's  request,  and at the Pledgor's  expense,  promptly (1)
return to the Pledgor such of the Pledged  Residuals as shall not have been sold
or  otherwise  disposed  of or applied  pursuant  to the terms  hereof,  and (2)
execute  and  deliver  to  the  Pledgor,  without  recourse,  representation  or
warranty,  such  documents as the Pledgor shall  reasonably  request to evidence
such termination. Notwithstanding the foregoing, a termination of this Agreement
and the security interest created hereby triggered by clause (i) of this Section
14(e)  shall be  conditioned  upon the  Agent's  receipt  of:  (A) an  officer's
certificate from the Pledgor issued in accordance with the Indenture  certifying
that such  termination is authorized and permitted by the Indenture and complies
with Section 314 of the Trust  Indenture Act of 1939, as amended (the "TIA") and
(B) a legal opinion from  Pledgor's  counsel,  in form and substance  reasonably
satisfactory to the Agent,  that such termination is authorized and permitted by
the Indenture and complies with Section 314 of the TIA.

                  (f) Notwithstanding  any  other provision of this Agreement to
the  contrary,  upon  the sale  of  the Delta  Funding  Home  Equity  Loan Trust
1996-2,  Home Equity Loan  Pass-Through  Certificates,  Series 1996-2,  Class R,
representing  percentage  ownership  of  99.999999%  in such class (the  "1996-2
RESIDUAL")  to Greenwich  Capital  Financial  Products,  Inc. and Goldman  Sachs
Mortgage  Company (A) the  security  interest  created  hereby in respect of the
1996-2  Residual  shall  terminate and all rights to the 1996-2  Residual  shall
revert to the Pledgor,  and (B) the Agent will, upon the Pledgor's request,  and
at the Pledgor's expense,  promptly execute and deliver to the Pledgor,  without
recourse,  representation  or  warranty,  such  documents  as the Pledgor  shall
reasonably request to evidence such termination.

                  (g) All  amounts  paid  by  the  Agent  in connection with the
purchase of Pledged Residuals under Section 4(c) of the Intercreditor  Agreement
shall be deemed an expense under Section 10 of this Agreement. Pledged Residuals
purchased by the Agent under Section 4(c) of the  Intercreditor  Agreement,  and
all cash  proceeds  received by the Agent in respect of any sale of,  collection
from,  or other  realization  upon,  all or any part of such Pledged  Residuals,
shall be held by the Agent  subject to Section 8 of this  Agreement and shall be
applied to the Obligations in accordance therewith.

                  (h) This  Agreement shall  be  governed  by  and  construed in
accordance  with  the law of the  State  of New  York,  except  as  required  by
mandatory  provisions  of law and except to the  extent  that the  validity  and
perfection or the perfection and the effect of perfection or  non-perfection  of
the security interest created hereby, or remedies  hereunder,  in respect of any
particular  Pledged  Residuals are governed by the law of a  jurisdiction  other
than the State of New York.

                  (i) This  Agreement   may  be  executed  in  any   number   of
counterparts and by the different  parties hereto on separate  counterparts each
of  which,  when so  executed,  shall  be  deemed  an  original,  but  all  such
counterparts shall constitute but one and the same instrument.


<PAGE>

                  IN WITNESS  WHEREOF,  the Pledgor has caused this Agreement to
be executed and delivered by its officer  thereunto duly  authorized,  as of the
date first above written.

                                             PLEDGOR:

                                             DELTA FUNDING CORPORATION

                                             By: /S/ MARC E. MILLER
                                             ---------------------------
                                               Name: Marc E. Miller
                                               Title: Senior Vice President

ACCEPTED AND AGREED:

U.S. BANK TRUST NATIONAL ASSOCIATION,
as Agent

By: /S/ PATTY J. KAPSCH
-----------------------------------
  Name: Patty J. Kapsch
  Title: Trust Officer

<PAGE>
<TABLE>
<CAPTION>

                                                    SCHEDULE I

                                                        TO

                                                 PLEDGE AGREEMENT

                                                 PLEDGED RESIDUALS
                                                 -----------------

               ISSUER                 SERIES           CLASS         PERCENTAGE INTEREST
               ------                 ------           -----         -------------------
    <S>                               <C>              <C>           <C>

    Delta Funding Home Equity

    Loan Trust 1996-2, Home           1996-2             R                99.999999%
    Equity Loan Pass-Through
    Certificates

    Delta Funding Home Equity

    Loan Trust 1999-3, Home           1999-3            R-1               0.000001%
    Equity Loan Asset-Backed
    Certificates

    Delta Funding Home Equity

    Loan Trust 1999-3, Home           1999-3            R-2               0.000001%
    Equity Loan Asset-Backed
    Certificates

    Delta Funding Home Equity

    Loan Trust 1999-3, Home           1999-3            R-3               0.000001%
    Equity Loan Asset-Backed
    Certificates
</TABLE>
<PAGE>



                                   SCHEDULE II

                                       TO

                                PLEDGE AGREEMENT

                               UCC FILING OFFICES
                               ------------------


   Delta Funding Corporation              Delaware Secretary of State

                                          New York Secretary of State

                                   County Clerk's Office, Nassau County, N.Y.

                                  County Clerk's Office, New York County, N.Y.

</TEXT>
</DOCUMENT>
