FIRST SUPPLEMENTAL INDENTURE





      FIRST  SUPPLEMENTAL  INDENTURE,  dated as of August 1, 2000,  by and among

Delta Financial  Corporation,  a Delaware  corporation (the "Company"),  each of

Delta Funding Corporation,  a New York Corporation ("Delta Funding"), DF Special

Holdings Corporation,  a Delaware corporation ("DF Special Holdings"),  Fidelity

Mortgage,  Inc., a Delaware  Corporation,  DFC Financial of Canada  Limited,  an

Ontario,  Canada corporation,  DFC Funding of Canada Limited, an Ontario, Canada

corporation,  Continental  Property  Management  Corp.,  a New York  corporation

(collectively, the "Subsidiary Guarantors") and The Bank of New York, as trustee

(the "Trustee"), under the Indenture referred to below.



      WHEREAS,  the  Company,  the  Subsidiary  Guarantors  and the Trustee have

previously entered into an Indenture dated as of July 23, 1997 (the "Indenture")

relating to the Company's 9 1/2% Senior Notes Due 2004 (the "Notes");



      WHEREAS,  Section 9.2 of the  Indenture  provides  that the  Company,  the

Subsidiary  Guarantors  and the Trustee  may,  with the  written  consent of the

holders of at least a majority in  principal  amount of the  outstanding  Notes,

amend or supplement the Indenture as provided herein;



      WHEREAS,  the holders of a majority in principal amount of the outstanding

Notes (the "Consenting  Noteholders")  have consented to this First Supplemental

Indenture and agreed with the Company to consummate a restructuring of the Notes

as  described  in  the  Term  Sheet  of  Informal   Noteholder   Committee   for

Restructuring attached hereto as ANNEX A (the "Term Sheet"); and



      WHEREAS,  all acts and things  prescribed  by law and by the Company's and

the Subsidiary  Guarantors'  Certificates of Incorporation  and By-laws (each as

now in effect)  necessary  to make this  First  Supplemental  Indenture  a valid

instrument legally binding on the Company and the Subsidiary  Guarantors for the

purposes herein expressed, in accordance with its terms, have been duly done and

performed;



      NOW THEREFORE,  in  consideration  of the foregoing and for other good and

valuable  consideration,  the  receipt  of which  is  hereby  acknowledged,  the

Company, the Subsidiary  Guarantors and the Trustee hereby agree for the benefit

of each other and the equal and  ratable  benefit of the holders of the Notes as

follows:



      1. AMENDMENT OF ARTICLE 1, SECTION 1.1.



      (a) The last  sentence  of the  definition  of "Asset  Sale"  included  in

Section 1.1 of the  Indenture is hereby  deleted in its entirety and replaced by

the following:



"Notwithstanding  the  foregoing,  the following  will not be deemed to be Asset

Sales:  (i)  an  issuance  of  Equity  Interests  by a  Wholly-Owned  Restricted

Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; (ii)

a Restricted  Payment that is permitted by Section 4.7; (iii) a disposition by a

Restricted Subsidiary to the Company or a Wholly-Owned  Restricted Subsidiary or

by the Company to a Wholly-Owned  Restricted Subsidiary of the Company; and (iv)

the sale,  conveyance or any other  disposition by the Company or any Restricted

Subsidiary,  of Residual Receivables and/or Servicing  Receivables in connection

with the consummation of the Interim Financing (as defined in and subject ot the

terms and conditions set forth in the Term Sheet)."



      (b) Subclause  (ii) of the  definition of  "Permitted  Liens"  included in

Section 1.1 of the  Indenture is hereby  amended by adding the  following at the

end thereof:



"PROVIDED FURTHER,  HOWEVER,  that the preceding proviso shall not be applicable

to Liens on  Residual  Receivables  and/or  Servicing  Receivables  (and/or  the

Capital Stock of Restricted Subsidiaries of the Company substantially all of the

assets of which are Residual Receivables and/or Servicing  Receivables) incurred

in connection with the consummation of the Interim Financing."



      (c) The definition of Servicing Receivables included in Section 1.1 of the

Indenture is hereby amended and restated as follows:



""Servicing  Receivables"  means  all  rights  arising  by  virtue  of being the

Servicer of  Receivables,  including  without  limitation,  the right to receive

servicing fees,  ancillary income,  reinvestment  income,  prepayment  premiums,

reimbursements for advances, or any interest in such rights, whether or not such

rights  or  interests  are  certificated;   PROVIDED,  HOWEVER,  that  Servicing

Receivables  excludes  the  right to be or to  replace  the  servicer  except in

connection  with the  securitization,  whole loan sale or pledge of  Receivables

under Warehouse Lines."



      (d) The following definition is added to Section 1.1 of the Indenture:



" "TERM SHEET" means the Term Sheet of Informal Noteholder Committee as attached

as ANNEX A to the First Supplemental Indenture, dated August 1, 2000."



      2. AMENDMENT OF ARTICLE 4, SECTION 4.10.



      The third  paragraph of Section 4.10 of the Indenture is hereby amended by

adding the following after the end thereof:



"The  restrictions  contained in this  paragraph  shall not be applicable to the

sale or  other  conveyance  or  disposition  by the  Company  or any  Restricted

Subsidiary of Residual Receivables and Servicing Receivables (and/or the Capital

Stock of Restricted  Subsidiaries  substantially  all of the assets of which are

Residual  Receivables  and/or  Servicing  Receivables)  in  connection  with the

consummation  of the Interim  Financing  (as defined in and subject to the terms

and conditions set forth in the Term Sheet)."



      3.  PLEDGE  OF  RESIDUAL  RECEIVABLES.  Notwithstanding  anything  to  the

contrary,  the sale,  conveyance or other  disposition  of, or the creation of a

Lien on Residual Receivables and Servicing Receivables (and/or the Capital Stock

of Restricted Subsidiaries substantially all of the assets of which are Residual

Receivables  and/or  Servicing  Receivables)  by the Company,  or any Restricted

Subsidiary  in connection  with the  consummation  of the Interim  Financing (as

defined in and subject to the terms and  conditions set forth in the Term Sheet)

shall not be  deemed a breach  or  violation  of any  covenant,  representation,

warranty or provision in the Indenture.



      4. GUARANTEE OF  INDEBTEDNESS.  Notwithstanding  anything to the contrary,

the Guarantee of the Company of any Indebtedness secured by Residual Receivables

and/or   Servicing   Receivables   (and/or  the  Capital   Stock  of  Restricted

Subsidiaries  substantially all of the assets of which are Residual  Receivables

and/or Servicing  Receivables) by the Company,  or any Restricted  Subsidiary in

connection  with the  consummation  of the Interim  Financing (as defined in and

subject to the terms and  conditions  set forth in the Term Sheet)  shall not be

deemed a breach  or  violation  of any  covenant,  representation,  warranty  or

provision in the Indenture.



      5. EFFECTIVENESS.  This First Supplemental Indenture shall be effective as

of the date  hereof.  If (i) the  definitive  terms of the  Exchange  Offer  (as

defined in the Term Sheet) have not been agreed with the Consenting  Noteholders

on or prior to September 1, 2000 or (ii) if the Company does not  consummate the

Exchange  Offer by exchanging New Notes (as defined in the Term Sheet) for Notes

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