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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-17771
 FRANKLIN CREDIT HOLDING CORPORATION
  Delaware
    
    26-3104776(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)101 Hudson StreetJersey City, New Jersey
    
    07302(Address of Principal
    
    (Zip code)Executive Offices)
 (201) 604-1800
  
 Yes o No þ
 Yes o No þ
 Yes þ No o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ




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##### 



FRANKLIN CREDIT HOLDING CORPORATION
 FORM 10-K
December 31, 2009
 INDEX
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    36Item 1B. Unresolved Staff Comments
    
    
    51Item 2. Properties
    
    
    51Item 3. Legal Proceedings
    
    
    52Item 4. (Removed and Reserved)
    
    
    52PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    53Item 6. Selected Financial Data
    
    
    54Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    55Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    90Item 8. Financial Statements and Supplementary Data
    
    
    92Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    92Item 9A(T). Controls and Procedures
    
    
    92Item 9B. Other Information
    
    
    93PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    94Item 11. Executive Compensation
    
    
    94Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    94Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    95Item 14. Principal Accountant Fees and Services
    
    
    95PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    96Exhibit 10.76Exhibit 10.77Exhibit 21.1Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
 
 ITEM 1.
    
    BUSINESS
  Overview
 Recent Developments
 Franklin Forbearance Agreement.
 Amendment and Extension of Licensing Credit Agreement.
 Collection Services Agreement.
  3




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March 2009 Restructuring
     4




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Franklin Credit Management Corporation
   Amendment to Bosco Servicing Agreement
   Going Concern Uncertainty  Franklin Holding
   6




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Operating Losses and Stockholders Deficit
   Transfers and Servicing
   7




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Licenses to Service Loans
    8




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Franklins Business
    Loan Servicing
     9




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Servicing and Collection Operations
  Loan Boarding and Administration .
  Customer Service .
 Client Relations .
 Collections .
  10




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Loss Mitigation .
   Real Estate .
 Deficiency Recovery & Judgment Processing Department (Recovery) .
  11




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Face to Face Home Solutions (Face to Face) .
 Training .
 Quality Control .
 Competition for Servicing Business
  Home Affordable Modification Program
   12




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Bosco Servicing Agreement
      13




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Due Diligence Services
  Financing
     Corporate History
   15




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December 2008 Corporate Reorganization
   (i)
    
    adopted a holding company form of organizational structure, with Franklin
Holding serving as the new public-company parent;(ii)
    
    transferred all of the equity and membership interests in FCMCs direct
subsidiaries to other entities in the reorganized corporate structure of the Company;(iii)
    
    assigned legal record ownership of any loans in the Companys portfolios held
directly by FCMC and Tribeca Lending Corporation, a direct, wholly-owned subsidiary of
FCMC (Tribeca), to other entities in the reorganized corporate structure of the
Company; and,(iv)
    
    amended its loan agreements with The Huntington National Bank (Huntington),
its lead lending bank.
   
    
    resulted in various licensing authorities evaluating FCMCs servicing platforms
compliance with applicable license requirements (including net worth requirements)
without reference to the loan portfolios and related indebtedness of the other entities
in the reorganized corporate structure of the Company, and accordingly, with positive
net worth; and,
    
    enhanced the Companys flexibility to potentially grow its servicing business and
take advantage of other corporate restructuring opportunities should they become
available.
    16




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Holding Company Structure
    (i)
    
    each share of common stock of the Predecessor (the Predecessor Common Stock)
issued and outstanding immediately prior to the Merger was converted into a share of
common stock of Franklin Holding (Franklin Holding Common Stock) having the same
designations, rights, powers and preferences, and qualifications, limitations and
restrictions thereof, as the share of Predecessor Common Stock so converted; and,(ii)
    
    each share of capital stock of Merger Sub issued and outstanding immediately
prior to the Merger was converted into a share of common stock of the Predecessor.
    17




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Legacy Portfolio Characteristics
 Overall Legacy Portfolio
   Unpaid
    
    
    Percentage of TotalProperty Types
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    $
    1,268,478,890
    
    
    
    82.41
    %Condos, co-ops, PUD dwellings
    
    
    193,149,884
    
    
    
    12.55
    %Manufactured and mobile homes
    
    
    15,135,861
    
    
    
    0.98
    %Multi-family
    
    
    443,023
    
    
    
    0.03
    %Secured, property type unknown(1)
    
    
    18,464,780
    
    
    
    1.20
    %Commercial
    
    
    1,920,922
    
    
    
    0.12
    %Unsecured loans(2)
    
    
    41,678,994
    
    
    
    2.71
    %Total
    
    $
    1,539,272,354
    
    
    
    100.00
    %
 
 (1)
    
    The loans included in this category are principally small balance (less than $10,000)
second-lien loans acquired, and are collateralized by residential real estate.(2)
    
    The loans included in this category are principally second-lien loans where the Company
is aware that residential real estate collateral has been foreclosed by the first-lien
holder.  18




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Asset Quality
 Delinquency .
   19




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December 31, 2008Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Performing  Current
    
    0 - 30 days
    
    $
    373,712,487
    
    
    
    24.28
    %
    
    $
    419,653,369
    
    
    
    27.26
    %Delinquent
    
    31 - 60 days
    
    
    30,511,251
    
    
    
    1.98
    %
    
    
    25,910,879
    
    
    
    1.69
    %61 - 90 days
    
    
    4,302,736
    
    
    
    0.28
    %
    
    
    21,390,383
    
    
    
    1.39
    %90+ days
    
    
    128,904,056
    
    
    
    8.38
    %
    
    
    70,475,899
    
    
    
    4.58
    %Modified Loans
    
    0 - 30 days
    
    
    262,156,611
    
    
    
    17.03
    %
    
    
    299,215,550
    
    
    
    19.44
    %Delinquent
    
    31 - 60 days
    
    
    46,097,510
    
    
    
    2.99
    %
    
    
    32,572,746
    
    
    
    2.12
    %61 - 90 days
    
    
    1,195,906
    
    
    
    0.08
    %
    
    
    15,542,772
    
    
    
    1.01
    %90+ days
    
    
    78,911,624
    
    
    
    5.13
    %
    
    
    41,030,583
    
    
    
    2.66
    %Bankruptcy
    
    0 - 30 days
    
    
    26,527,458
    
    
    
    1.72
    %
    
    
    62,020,559
    
    
    
    4.03
    %Delinquent
    
    31 - 60 days
    
    
    5,929,387
    
    
    
    0.38
    %
    
    
    10,264,968
    
    
    
    0.67
    %61 - 90 days
    
    
    1,644,545
    
    
    
    0.11
    %
    
    
    4,623,655
    
    
    
    0.30
    %90+ days
    
    
    90,762,522
    
    
    
    5.90
    %
    
    
    47,954,730
    
    
    
    3.11
    %Foreclosure
    
    0 - 30 days
    
    
    2,575,557
    
    
    
    0.16
    %
    
    
    19,594,271
    
    
    
    1.27
    %Delinquent
    
    31 - 60 days
    
    
    743,187
    
    
    
    0.05
    %
    
    
    7,639,599
    
    
    
    0.50
    %61 - 90 days
    
    
    123,808
    
    
    
    0.01
    %
    
    
    7,248,534
    
    
    
    0.47
    %90+ days
    
    
    485,173,709
    
    
    
    31.52
    %
    
    
    454,133,857
    
    
    
    29.50
    %Total
    
    $
    1,539,272,354
    
    
    
    100.00
    %
    
    $
    1,539,272,354
    
    
    
    100.00
    %All current loans
    
    0 - 30 days
    
    $
    664,972,113
    
    
    
    43.20
    %
    
    $
    800,483,749
    
    
    
    52.00
    %
    20




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Legacy Notes Receivable Portfolio
   December 31, 2008Performing loans
    
    $
    528,953,209Allowance for loan losses
    
    
    130,724,698Nonaccretable discount*
    
    
    25,277,808Total performing loans, net
allowance for loan losses and nonaccretable discount
    
    
    372,950,703Impaired loans
    
    
    615,159,200Allowance for loan losses
    
    
    340,368,461Nonaccretable discount*
    
    
    72,325,558Total impaired loans, net
allowance for loan losses and nonaccretable discount
    
    
    202,465,181Total notes receivable, net
allowance for loan losses and nonaccretable discount
    
    
    575,415,884Accretable discount*
    
    
    24,860,752Total notes receivable, net
allowance for loan losses and accretable/nonaccretable discount
    
    $
    550,555,132
 
 *
    
    Represents purchase discount not reflected on the face of the balance sheet in
accordance with Topic 310, Loans and Debt Securities Acquired with Deteriorated Credit
Quality, for loans acquired after December 31, 2004. Accretable Discount is the excess of
the loans estimated cash flows over the purchase prices, which is accreted into income
over the life of the loan. Nonaccretable Discount is the excess of the undiscounted
contractual cash flows over the undiscounted cash flows estimated at the time of
acquisition.   21




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December 31, 2008Performing Loans:Fixed rate
    
    $
    325,799,144Adjustable rate
    
    
    72,429,367Total Performing Loans
    
    $
    398,228,511Impaired Loans:Fixed rate
    
    $
    162,504,488Adjustable rate
    
    
    112,286,251Total Impaired Loans
    
    $
    274,790,739Total Notes
    
    $
    673,019,250Accretable discount
    
    $
    24,860,752Nonaccretable discount
    
    $
    97,603,366Total Notes Receivable,
net of allowance for loan losses
    
    $
    550,555,132
  Lien Position.
 December 31, 2008Percentage of TotalLien Position
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    $
    390,020,158
    
    
    
    34.09
    %2nd Liens
    
    
    754,092,251
    
    
    
    65.91
    %Total
    
    $
    1,144,112,409
    
    
    
    100.00
    %
  22




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Other Real Estate Owned
  2009
    
    
    2008Other real estate owned
    
    $
    
    
    
    $
    60,748,390OREO as a percentage of total assets
    
    
    
    
    
    
    5.94
    %OREO sold (prior to the Restructuring)
    
    $
    18,852,671
    
    
    $
    41,609,095Gain on sale
    
    $
    374,344
    
    
    $
    2,213,998
  Property Types of Originated Loans Held for Investment
  December 31, 2008Unpaid
    
    
    Percentage of TotalProperty Types
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    $
    366,986,696
    
    
    
    92.87
    %Condos, co-ops, PUD dwellings
    
    
    26,235,944
    
    
    
    6.64
    %Commercial
    
    
    1,213,370
    
    
    
    0.31
    %Other
    
    
    723,935
    
    
    
    0.18
    %Total
    
    $
    395,159,945
    *
    
    
    100.00
    %
 
 *
    
    UPB before net deferred fees and allowance for loan losses.   23




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Geographic Dispersion of Originated Loans Held for Investment.
 December 31, 2008Principal
    
    
    Percentage of TotalLocation
    
    Balance
    
    
    Principal BalanceNew York
    
    $
    123,880,052
    
    
    
    31.35
    %New Jersey
    
    
    110,711,384
    
    
    
    28.02
    %Pennsylvania
    
    
    36,953,589
    
    
    
    9.35
    %Florida
    
    
    21,861,359
    
    
    
    5.53
    %Maryland
    
    
    19,009,954
    
    
    
    4.81
    %Massachusetts
    
    
    16,962,889
    
    
    
    4.29
    %Connecticut
    
    
    14,686,403
    
    
    
    3.72
    %Virginia
    
    
    13,589,808
    
    
    
    3.44
    %California
    
    
    9,479,743
    
    
    
    2.40
    %North Carolina
    
    
    4,316,450
    
    
    
    1.09
    %All Others
    
    
    23,708,314
    
    
    
    6.00
    %Total
    
    $
    395,159,945
    *
    
    
    100.00
    %
 
 *
    
    UPB before net deferred fees and allowance for loan losses.  24




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Delinquency .
   25




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December 31, 2008Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Performing  Current
    
    0 - 30 days
    
    $
    36,507,373
    
    
    
    9.24
    %
    
    $
    44,588,755
    
    
    
    11.28
    %Delinquent
    
    31 - 60 days
    
    
    3,581,801
    
    
    
    0.91
    %
    
    
    3,481,770
    
    
    
    0.88
    %61 - 90 days
    
    
    
    
    
    
    
    
    
    
    3,502,244
    
    
    
    0.89
    %90+ days
    
    
    15,384,265
    
    
    
    3.89
    %
    
    
    3,900,670
    
    
    
    0.99
    %Modified Loans
    
    0 - 30 days
    
    
    94,745,106
    
    
    
    23.98
    %
    
    
    114,563,000
    
    
    
    28.99
    %Delinquent
    
    31 - 60 days
    
    
    22,270,155
    
    
    
    5.64
    %
    
    
    13,869,945
    
    
    
    3.51
    %61 - 90 days
    
    
    
    
    
    
    
    
    
    
    6,542,880
    
    
    
    1.66
    %90+ days
    
    
    38,332,095
    
    
    
    9.70
    %
    
    
    20,371,531
    
    
    
    5.16
    %Bankruptcy
    
    0 - 30 days
    
    
    1,059,398
    
    
    
    0.27
    %
    
    
    6,454,645
    
    
    
    1.63
    %Delinquent
    
    31 - 60 days
    
    
    35,838
    
    
    
    0.01
    %
    
    
    3,258,305
    
    
    
    0.83
    %61 - 90 days
    
    
    
    
    
    
    
    
    
    
    1,620,981
    
    
    
    0.41
    %90+ days
    
    
    25,146,648
    
    
    
    6.36
    %
    
    
    14,907,953
    
    
    
    3.77
    %Foreclosure
    
    0 - 30 days
    
    
    558,299
    
    
    
    0.14
    %
    
    
    7,335,438
    
    
    
    1.85
    %Delinquent
    
    31 - 60 days
    
    
    128,777
    
    
    
    0.03
    %
    
    
    3,750,505
    
    
    
    0.95
    %61 - 90 days
    
    
    
    
    
    
    
    
    
    
    3,741,529
    
    
    
    0.95
    %90+ days
    
    
    157,410,190
    
    
    
    39.83
    %
    
    
    143,269,794
    
    
    
    36.25
    %Total
    
    $
    395,159,945
    
    
    
    100.00
    %
    
    $
    395,159,945
    
    
    
    100.00
    %All current loans
    
    0 - 30 days
    
    $
    132,870,176
    
    
    
    33.62
    %
    
    $
    172,941,838
    
    
    
    43.77
    %
   26




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Government Regulation
  
    
    the Equal Credit Opportunity Act and Regulation B;
    
    the Truth in Lending Act and Regulation Z;
    
    the Home Ownership and Equity Protection Act;
    
    the Real Estate Settlement Procedures Act, and Regulation X;
    
    the Fair Credit Reporting Act;
    
    the Fair Debt Collection Practices Act;
    
    the Home Mortgage Disclosure Act, and Regulation C;
    
    the Fair Housing Act;
    
    the Telemarketing and Consumer Fraud and Abuse Prevention Act;
    
    the Telephone Consumer Protection Act;
    
    the Gramm-Leach-Bliley Act;
    
    the Servicemembers Civil Relief Act;
    
    the Fair and Accurate Credit Transactions Act;
    
    the CAN-SPAM Act;
    
    the Secure and Fair Enforcement for Mortgage Licensing Act of 2008; and,
    
    the Helping Families Save Their Homes Act of 2009.
   
    
    impose licensing obligations and financial requirements on us;
    
    limit the interest rates, finance charges, and other fees that we may charge;
    
    prohibit discrimination both in the extension of credit and in the terms and
conditions on which credit is extended;
  27




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
    
    prohibit the payment of kickbacks for the referral of business incident to a real
estate settlement service;
    
    impose underwriting requirements;
    
    mandate various disclosures and notices to consumers, as well as disclosures to
governmental entities;
    
    mandate the collection and reporting of statistical data regarding our customers;
    
    require us to safeguard non-public information about our customers;
    
    regulate our collection, loss mitigation and loan modification practices;
    
    require us to combat money-laundering and avoid doing business with suspected
terrorists;
    
    restrict the marketing practices utilized to find customers, including restrictions
on outbound telemarketing; and,
    
    impose, in some cases, assignee liability on us as purchaser or seller of mortgage
loans as well as the entities that purchase our mortgage loans.
  
    
    civil and criminal liability, including potential monetary penalties;
    
    loss of servicing licenses or approved status required for continued business
operations;
    
    demands for indemnification or loan repurchases from purchasers of our loans;
    
    legal defenses causing delay and expense;
    
    adverse effects on our ability, as servicer, to enforce loans;
    
    the imposition of supervisory agreements and cease-and-desist orders;
    
    the borrower having the right to rescind or cancel the loan transaction;
    
    adverse publicity;
    
    individual and class action lawsuits;
    
    administrative enforcement actions;
    
    damage to our reputation in the industry; or,
    
    inability to obtain credit to fund our operations.
  28




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New Areas of Regulation
     29




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Home Affordable Modification Program
  Compliance, Quality Control and Quality Assurance
  Privacy
  Fair Credit Reporting Act
    33




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Home Mortgage Disclosure Act
   SAFE Act
     34




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Telephone Consumer Protection Act and Telemarketing Consumer Fraud and Abuse Prevention Act
  Environmental Matters
  Employees
    35




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ITEM 1A.
    
    RISK FACTORS
 Risks Related to Our Business
 A prolonged economic slowdown or a lengthy or severe recession could harm our operations,
particularly if it results in a decline in the real estate market.
  The Company may not be able to continue as a going concern.
  Our credit facilities and servicing agreement with the Bank require us to observe certain
covenants, and our failure to satisfy such covenants could render us insolvent.
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Based on our current rate of collections on the assets we transferred to the Trust under the
Restructuring Agreement, without a significant special transaction, we may not be able to achieve
the minimum amount of net remittances necessary to reduce the pledge of FCMC stock to the Bank from
70% to a minimum of 20% or at all.
  If our lenders fail to renew our loans under the Licensing Credit Agreement for additional terms or
provide us with refinancing opportunities, our indebtedness under the $2 million revolving line
will become due and payable in 2011; and, the draw line for working capital needs of FCMC will
expire on May 31, 2010.
  If our lenders fail to renew our loans under the Legacy Credit Agreement for additional terms or
provide us with refinancing opportunities, our legacy indebtedness will become due and payable in
2012.
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If our lenders fail to extend the Forbearance Agreement covering the Unrestructured Debt, the
Unrestructured Debt will become due and payable and the Bank would be able to foreclose on the
portion of the stock of FCMC pledged to it.
  The Bank may transfer our rights as servicer to the assets we transferred to the Trust under the
Restructuring Agreement to a third party.
  Our ability to fund operating expenses depends on the cash flow received from servicing loans for
third parties.
  Our business is sensitive to, and can be materially affected by, changes in interest rates.
  
    
    The majority of our borrowings bear interest at variable rates and we are only
partially hedged through interest rate swaps and caps, while a significant majority of
our investments bear fixed rates. As a result, an increase in interest rates is likely
to result in an increase in our interest expense without an offsetting increase in
interest income, which would adversely affect our profitability.
 
    
    An increase in interest rates may lead to an increase in borrower defaults, if
borrowers have difficulties making their adjustable-rate mortgage payments, and a
corresponding increase in nonperforming assets, which could decrease our servicing and
collection revenues and our cash flows, increase our loan servicing costs, and
adversely affect our profitability.
  38




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The Bank may prevent our pursuing future business opportunities.
  We may not be successful in entering into or implementing our planned business of providing
servicing and other mortgage related services for other entities on a fee-paying basis.
  If we do not obtain and maintain the appropriate state licenses, we will not be allowed to service
mortgage loans in some states, which would adversely affect our operations.
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A significant amount of the mortgage loans that we originated prior to the Restructuring and
transferred to the Trust as part of the Restructuring are secured by property in New York and New
Jersey, and our operations could be harmed by economic downturns or other adverse events in these
states.
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We may not be adequately protected against the risks inherent in servicing subprime residential
mortgage loans.
  A number of the second-lien mortgage loans that we service are subordinated to ARM or interest-only
mortgages that may be subject to monthly payment increases, which may result in delinquencies and a
decrease in servicing and collection revenues.
  We are subject to losses from the mortgage loans we acquired and originated prior to the
Restructuring due to fraudulent and negligent acts on the part of loan applicants, mortgage
brokers, sellers of loans we acquired, vendors and our employees.
   41




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Legal proceedings could be brought which could adversely affect our financial results.
  Given the nature of the industry in which we operate, our businesses is, and in the future may
become, involved in various legal proceedings the ultimate resolution of which is inherently
unpredictable and could have a material adverse effect on our business, financial position, results
of operations or cash flows.
  We are exposed to counter-party risk and there can be no assurances that we will manage or mitigate
this risk effectively.
  The success and growth of our servicing business will depend on our ability to adapt to and
implement technological changes, and any failure to do so could result in a material adverse effect
on our business.
  If we do not manage the changes in our businesses effectively, our financial performance could be
harmed.
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The inability to attract and retain qualified employees could significantly harm our business.
  An interruption in or breach of our information systems may result in lost business and increased
expenses.
  We are exposed to the risk of environmental liabilities with respect to properties to which we take
title.
  A loss of our Chairman and President may adversely affect our operations.
   43




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Risks Related to Our Financial Statements
 Our financial condition and financial results can be materially affected by Federal Reserves Board
policies and the capital markets.
   We may become subject to liability and incur increased expenditures as a result of the restatement
of our financial statements.
  We may become subject to liability and incur increased expenditures as a result of our having
reassessed our allowance for loan losses and our transfer of substantially all our mortgage
portfolio related assets to the Bank.
  Failures in our internal controls and disclosure controls and procedures could lead to material
errors in our financial statements and cause us to fail to meet our reporting obligations.
   44




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Risks Related to the Regulation of Our Industry
 New legislation and regulations directed at curbing predatory lending practices could restrict our
ability to service non-prime residential mortgage loans, which could adversely impact our earnings.
       45




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The broad scope of our operations exposes us to risks of noncompliance with an increasing and
inconsistent body of complex laws and regulations at the federal, state and local levels.
   
    
    civil and criminal liability, including potential monetary penalties;
 
    
    loss of servicing and debt collection licenses or approved status required for
continued business operations;
 
    
    demands for indemnification or loan repurchases from purchasers of our loans;
 
    
    legal defenses causing delay and expense;
 
    
    adverse effects on our ability, as servicer or debt collector, to enforce loans;
  46




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
    
    the imposition of supervisory agreements and cease-and-desist orders;
 
    
    the borrower having the right to rescind or cancel the loan transaction;
 
    
    adverse publicity;
 
    
    individual and class action lawsuits;
 
    
    administrative enforcement actions;
 
    
    damage to our reputation in the industry; or;
 
    
    the inability to obtain credit to fund our operations.
  We may be subject to fines or other penalties based upon the conduct of our independent brokers.
  We are subject to reputation risks from negative publicity concerning the subprime mortgage
industry.
    47




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We are subject to significant legal and reputation risks and expenses under federal and state laws
concerning privacy, use and security of customer information.
  If many of the borrowers of the loans we service become subject to the Servicemembers Civil Relief
Act of 2003, our cash flows and service fee income may be adversely affected.
  Legislative action to provide mortgage relief may negatively impact our business.
   48




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Risks Related to Our Securities
 Thomas J. Axon effectively controls our company, substantially reducing the influence of our other
stockholders.
  
    
    the election of our directors; and,
 
    
    the approval of mergers, sales of assets or other corporate transactions or matters
submitted for stockholder approval.
   49




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Our common stock is quoted only on the OTC Bulletin Board, which may adversely impact the price and
liquidity of the common stock, and our ability to raise capital.
  Our organizational documents, Delaware law and our Restructuring Agreements may make it harder for
us to be acquired without the consent and cooperation of our board of directors, management and our
Bank.
     Our quarterly operating results may fluctuate and cause our stock price to decline.
  
    
    the timing and amount of collections on loans that we service;
 
    
    the rate of delinquency, default, foreclosure and prepayment on the loans we
service;
 
    
    changes in interest rates;
 
    
    fair valuation adjustments related to changes in the fair value of investments in
mortgage loans and real estate held for sale and investments in trust certificates;
  50




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
    
    our inability to purchase and originate new mortgage loans for portfolio or for sale
in the secondary mortgage market;
 
    
    our inability to successfully enter the new business of servicing loans for third
parties;
 
    
    further declines in the estimated value of real property securing mortgage loans;
 
    
    increases in operating expenses associated with the changes in our business;
 
    
    general economic and market conditions; and,
 
    
    the effects of state and federal tax, monetary and fiscal policies.
  Compliance with the rules of the market in which our common stock trades, and proposed and recently
enacted changes in securities laws and regulations are likely to increase our costs.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
 th th th th th th th
 th
  51




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th
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
  52




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information.
  High
    
    
    LowYear Ended December 31, 2008:First Quarter
    
    $
    1.10
    
    
    $
    0.60Second Quarter
    
    
    1.19
    
    
    
    0.63Third Quarter
    
    
    0.86
    
    
    
    0.27Fourth Quarter
    
    
    1.25
    
    
    
    0.35Year Ended December 31, 2009:First Quarter
    
    
    0.75
    
    
    
    0.13Second Quarter
    
    
    1.00
    
    
    
    0.25Third Quarter
    
    
    1.10
    
    
    
    0.40Fourth Quarter
    
    
    1.25
    
    
    
    0.30
 Holders.
 Dividend Policy.
  53




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Securities Authorized for Issuance Under Compensation Plans.
 Recent Sales of Unregistered Securities
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
   54




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Managements Discussion and Analysis of Financial Condition and Results of Operations
includes forward-looking statements. We have based these forward-looking statements on our current
plans, expectations and beliefs about future events. In light of the risks, uncertainties and
assumptions discussed under Item 1A. Risk Factors of this Annual Report on Form 10-K and other
factors discussed in this section, there are risks that our actual experience will differ
materially from the expectations and beliefs reflected in the forward-looking statements in this
section and throughout this report. For more information regarding what constitutes a
forward-looking statement, please refer to Item 1A. Risk Factors.
 General
   Going Concern Uncertainty
   55




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Executive Summary
    56




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Transfers and
Servicing
  Application of Critical Accounting Policies and Estimates
   Noncontrolling interest Consolidations Consolidated Financial Statements
 Investment in REIT Securities
 Investment in Trust Certificates
  57




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Mortgage Loans and Real Estate Held for Sale Transfers and Servicing
 Nonrecourse Liability
 Fair Valuation Adjustments
 Notes Receivable Held for Sale
 Income Recognition on Investment in Trust Certificates and Mortgage Loans and Real Estate Held
for Sale
  58




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Notes Receivable and Income Recognition
  Discounts on Acquired Loans
   59




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Originated Loans Held for Investment
  Allowance for Loan Losses
 Other Real Estate Owned
 Derivatives Derivatives and Hedging
  60




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Fair Value Measurements
 Fair Value Measurements and Disclosures,
 
    
    Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
    
    Level 2 Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable for the asset
of liability, either directly or indirectly, for substantially the full term of the
financial instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted cash
flows.
    
    Level 3 Inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Fair values are initially valued based upon transaction
price and are adjusted to reflect exit values as evidenced by financing and sale
transactions with third parties.
   New Accounting Pronouncements
  Results of Operations Franklin Credit Management Corporation (FCMC)
    62




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Transfers and
Servicing
     63




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Twelve Months EndedSTATEMENT OF INCOME
    
    December 31, 2009REVENUES:Interest income
    
    $
    104,836Servicing fees and other income
    
    
    27,870,675Total revenues
    
    
    27,975,511OPERATING EXPENSES:Interest expense
    
    
    78,119Collection, general and administrative
    
    
    20,188,497Depreciation
    
    
    642,941Total operating expenses
    
    
    20,909,557INCOME BEFORE PROVISION FOR INCOME TAXES
    
    $
    7,065,954Provision for income taxes
    
    
    2,824,007NET INCOME
    
    $
    4,241,947
 BALANCE SHEET
    
    At December 31, 2009ASSETS:Cash and cash equivalents
    
    $
    15,116,880Restricted cash
    
    
    4,770,867Receivables, fixed and other assets
    
    
    6,436,434Total assets
    
    $
    26,324,181LIABILITIES:Debt
    
    $
    1,000,000Servicing liabilities
    
    
    4,770,867Other liabilities
    
    
    1,675,372Total liabilities
    
    $
    7,446,239STOCKHOLDERS EQUITY
    
    $
    18,877,942Total liabilities and stockholders equity
    
    $
    26,324,181SERVICING PORTFOLIO:Number of loans serviced
    
    
    36,700Unpaid principal balance serviced
    
    $
    1.80 billion
   64




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Results of Operations  Franklin Credit Holding Corporation
   Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Overview.
   65




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Revenues.
    66




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Transfers and Servicing
    67




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Operating Expenses.
   68




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69




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Liquidity and Capital Resources
 General
    Short-term Investments.
  70




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Cost of Funds.
 Under the terms of theForbearance Agreementsand Credit AgreementIn accordance with the
    
    
    excludedterms of the Restructuring
    
    
    from the RestructuringAgreements
    
    
    AgreementsFHLB 30-day LIBOR advance rate plus 2.60%
    
    $
    
    
    
    $
    15,998,860FHLB 30-day LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    23,535,477LIBOR plus 2.25% (Tranche A)
    
    
    770,617,430
    
    
    
    LIBOR plus 2.75% (Tranche B)
    
    
    417,164,681
    
    
    
    15.00% (Tranche C)
    
    
    140,074,386
    
    
    
    $
    1,327,856,497
    
    
    $
    39,534,337
  Cash Flow from Operating, Investing and Financing Activities
       71




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Borrowings
   Restructuring Agreements with Lead Lending Bank
  March 2009 Restructuring
   72




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73




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Background to the Restructuring.
  Summary of the Restructuring.
 (1)
    
    in exchange for the transfer of that part of the Portfolio underlying the Bank
Trust Certificates (as defined below), the Company received common membership interests
and Class C preferred membership interests in the REIT having in the aggregate a value
intended to approximate the fair market value of that portion of the Portfolio
transferred to the Bank, which as of March 31, 2009 was approximately $477.3 million
(the REIT Securities). The preferred membership interests have a liquidation value
of $100,000 per unit and an annual cumulative dividend rate of 9% of such liquidation
value. Any dividends on the preferred shares shall be payable only out of funds
legally available for the payment thereof;
 (2)
    
    principal and interest payments in respect of the Legacy Credit Agreement are
only due and payable to the extent of cash flow of the Company, which cash flow would
include dividends declared and paid in respect of the REIT Securities or any other
assets of the Company, other than the retained interest in FCMC (as discussed below);
and,
 (3)
    
    the Banks recourse in respect of the Legacy Credit Agreement is limited to the
assets and stock of Franklin Holdings subsidiaries, excluding the assets of FCMC
(except for a first lien of the Bank on an office condominium unit and a second
priority lien of the Bank on cash collateral held as security under the Licensing
Credit Agreement) and a portion of FCMCs stock, representing not less than twenty
percent and not more than seventy percent of FCMCs common equity, based on the amounts
received by the Bank from the cash collections from FCMCs servicing of the Portfolio
as discussed in more detail below. Under the terms and conditions of the Restructuring
Agreements, FCMC may pay dividends or other distributions in respect of its capital
stock if FCMC delivers to the Bank a payment to be applied to outstanding obligations
under the Legacy Credit Agreement equal to seventy percent of any such distribution or
dividend that FCMC elects to make or declare, which percentage share may be reduced to
twenty percent based upon the Banks receipt of the agreed amounts of net remittances
from the Portfolio summarized below.
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(1)
    
    release of thirty percent of the equity in FCMC, ten percent of which has been
transferred to the Companys principal stockholder, Thomas J. Axon, from the Companys
pledges to the Bank in respect of its Legacy Credit Agreement, with the possibility of
release of up to an additional fifty percent (of which a maximum of ten percent would
go to Thomas J. Axon), based upon the Banks receipt of the agreed amounts of net
remittances from the Portfolio, summarized below (the Net Remittances), from March
31, 2009, the effective date of the Legacy Credit Agreement (the Legacy Effective
Date), through the term of the Legacy Credit Agreement; the Bank shall reduce its
interest in the equity in FCMC, as collateral, in accordance with the following
collection levels;
 Minimum Amountof Net RemittancesLevel
    
    (Minimum Level Amount)
    
    Time Period
    
    Release of Equity InterestsLevel 1
    
    $225 million
    
    1 year from the Legacy Effective Date
    
    10% (70% reduces to 60%)Level 2
    
    $475 million
    
    3 years from the Legacy Effective Date
    
    10% (60% reduces to 50%)Level 3
    
    $575 million
    
    No time period specified
    
    10% (50% reduces to 40%)Level 4
    
    $650 million
    
    No time period specified
    
    10% (40% reduces to 30%)Level 5
    
    $750 million
    
    No time period specified
    
    10% (30% reduces to 20%)
 (2)
    
    entry into a servicing agreement enabling the Company to receive fee income in
respect of its continued servicing of the transferred Portfolio; and,
 (3)
    
    entry into amended credit facilities in the aggregate principal amount of $13.5
million, including a $5 million facility for working capital and to support various
servicer licenses, a $2 million revolving facility and a $6.5 million letter of credit
facility to support various servicer licenses.
 
 *
    
    Provided, however, (i) if Net Remittances do not reach the minimum Level 1 amount prior to
the first anniversary of the Legacy Effective Date, but reach the minimum Level 2 amount prior
to the third anniversary of the Legacy Effective Date, the Bank shall retain, as collateral,
55% of the FCMC equity instead of 50%, as currently scheduled, and any subsequent reductions
in the amount of FCMC equity pledged to the Bank shall be 10%; and provided further that (ii)
if Net Remittances do not reach the minimum Level 1 amount prior to the first anniversary of
the Legacy Effective Date and do not reach the minimum Level 2 amount prior to the third
anniversary of the Legacy Effective Date, then the schedule for release of the equity
interests in FCMC currently pledged to the Bank shall be as follows: (x) upon attaining the
minimum Level 3 amount, the pledged equity interests in FCMC shall reduce 25% (from 70% to
45%); (y) upon attaining the minimum Level 4 amount, the pledged equity interests in FCMC
shall reduce an additional 10% (from 45% to 35%), and (z) upon attaining the minimum Level 5
amount, the pledged equity interests in FCMC shall reduce an additional 10% (from 35% to 25%).  (1)
    
    the possible transfer of ownership of a portion of FCMC, including a minimum of
twenty percent and a maximum of seventy percent, to the Bank at maturity of the
Companys Legacy Credit Agreement with the Bank, unless further extended if the Company
is not otherwise able to satisfy or refinance the Legacy Credit Agreement prior to
maturity;
 (2)
    
    the transfer of ten percent of ownership of FCMC to Franklin Holdings
principal stockholder, Thomas J. Axon, as the cost of obtaining certain guarantees and
pledges required by the Bank as a condition of the restructuring, subject to increase
to an additional ten percent should the pledge of common shares of FCMC by Franklin
Holding to the Bank be reduced upon the attainment by FCMC of certain net collection
targets set by the Bank with respect to the Portfolio;
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(3)
    
    entry into a service agreement with respect to FCMCs continued servicing of
the Portfolio that allows the Bank to terminate such servicing and, concomitantly,
FCMCs fee income from servicing the Portfolio; and,
 (4)
    
    the Company may incur significant income tax liabilities as a result in part of
a tax basis transfer, at termination of the Legacy Credit Agreement, liquidation of the
Company or any of its direct or indirect subsidiary companies, or certain other Company
events such as a de facto liquidation. The amount of any tax liability that the
Company may incur is not certain since any such calculations need to be performed on a
company by company basis and are influenced by a number of factors including, but not
limited to, the ability to use prior year losses and future results of operations.
 Restructuring Agreements.
 1.
    
    Transferred substantially the entire Portfolio in exchange for the REIT Securities.
  (a)
    
    an undivided 100% interest of the Banks portion of consumer mortgage
loans (the Bank Consumer Loan Certificate);
 (b)
    
    an undivided 100% interest in the Banks portion of consumer REO assets
(the Bank Consumer REO Certificate, and together with the Bank Consumer Loan
Certificate, the Bank Trust Certificates);
 (c)
    
    an undivided 100% interest in the portion of consumer mortgage loan
assets allocated to the M&I Marshall & Ilsley Bank (M&I) and BOS (USA) Inc.
(BOS) (M&I and BOS collectively, the Participants) represented by two
certificates (the Participants Consumer Loan Certificates); and,
 (d)
    
    an undivided 100% interest in Participants portion of the consumer REO
assets represented by two certificates (the Participants Consumer REO
Certificates, and together with the Participants Consumer Loan Certificate, the
Participants Trust Certificates).
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2.
    
    Amended and restated substantially all of its outstanding debt.
   77




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Terms of the Restructured Indebtedness Under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amount
    
    
    Applicable Interest
    
    
    Required Monthlyat March 31, 2009 
    
    
    at December 31, 2009 
    
    
    Margin Over LIBOR
    
    
    PrincipalFranklin Asset/Tribeca
    
    
    Franklin Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    771,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    $
    417,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    $
    140,000,000
    
    
    
    N/A
    (1)
    
    NoneUnrestructured Debt
    
    $
    41,000,000
    
    
    $
    40,000,000
    
    
    
    
    (2)

    
    None
 
 (1)
    
    The applicable interest rate is fixed at 15% per annum. Interest will be paid in kind
during the term of the Restructuring.(2)
    
    Interest margin over FHLB 30-day LIBOR advance rate plus 2.60%-2.75%.    78




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79




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3.
    
    Entered into an amended and restated credit agreement to fund FCMCs licensing obligations
and working capital.
        80




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4.
    
    Entered into a servicing agreement with the New Trust.
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Forbearance Agreements with Lead Lending Bank
    
    
    $44.5 million of the Companys indebtedness under the Master Credit and Security
Agreement, dated as of October 13, 2004, as amended, by and among Franklin Credit,
certain subsidiaries of Franklin Credit and the bank; and,
 
    
    $44.8 million of Tribecas indebtedness to BOS (USA) Inc., an affiliate of Bank of
Scotland, under the Master Credit and Security Agreement, dated March 24, 2006, by and
among Tribeca, certain subsidiaries and BOS.
  Debt Restructuring.
 
    
    the Company acknowledged, and the bank waived, certain existing defaults under the
Companys existing credit facilities with the bank;
 
    
    Franklin Credits indebtedness to the bank was reduced by $300 million and Franklin
Credit paid a restructuring fee of $12 million to the bank;
 
    
    the remaining approximately $1.54 billion of outstanding indebtedness to the bank,
including approximately $1.05 billion of outstanding indebtedness of Franklin Credit
and approximately $491.1 million of outstanding indebtedness of Tribeca, was
restructured into six term loans with modified terms and a maturity date of May 15,
2009; and,
 
    
    the Company paid all of the accrued interest on its debt outstanding to the bank
through December 27, 2007 and guaranteed payment and performance of the restructured
indebtedness.
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Terms of the Restructured Indebtedness.
 ApplicableOutstanding
    
    
    Interest
    
    
    Required Monthly
    
    
    Required MonthlyOutstanding
    
    
    Principal
    
    
    Margin Over
    
    
    Principal
    
    
    PrincipalPrincipal Amount 
    
    
    Amount 
    
    
    LIBOR
    
    
    Amortization 
    
    
    Amortization Franklin Credit
    
    
    Tribeca
    
    
    (basis points)
    
    
    Franklin Credit
    
    
    TribecaTranche A
    
    $
    600,000,000
    
    
    $
    400,000,000
    
    
    
    225
    
    
    $
    5,400,000
    
    
    $
    3,600,000Tranche B
    
    $
    323,255,000
    
    
    $
    91,142,000
    
    
    
    275
    
    
    $
    750,000
    
    
    $
    250,000Tranche C
    
    $
    125,000,000
    
    
    
    N/A
    
    
    
    N/A
    (1)
    
    
    N/A
    (2)
    
    
    N/ATranche D
    
    $
    1,033,000
    (3)
    
    
    N/A
    
    
    
    250
    (4)
    
    
    N/A
    
    
    
    N/AUnrestructured Debt
    
    $
    44,537,000
    
    
    $
    44,835,000
    
    
    
    235-250
    
    
    $
    148,000
    
    
    $
    498,000
 
 (1)
    
    The applicable interest rate is fixed at 10% per annum. Interest will be paid in kind
during the term of the forbearance.(2)
    
    Tranche C requires no principal amortization. All principal is due at maturity.(3)
    
    Tranche D serves as a revolving credit line with a maximum availability of $5 million,
and an additional $5 million which may be used for issuance of letters of credit.(4)
    
    Does not include a letter of credit facing fee of 0.125% per annum on the average daily
undrawn amount of each issued and outstanding letter of credit.   Total OutstandingPrincipal Amount
    
    
    Weighted Average(Franklin Credit and Tribeca)*
    
    
    Applicable Interest RateImmediately after restructuring
    
    $1.63 billion
    
    
    7.49
    %Immediately prior to restructuring
    
    $1.93 billion
    
    
    7.71
    %
 
 *
    
    Includes the Unrestructured Debt.  Cash Flow.
 
    
    to pay interest in respect of Tranche A advances, Tranche B advances and, in the
case of Franklin Credit, Tranche D advances, in that order;
    
    to pay fees related to the Companys letters of credit from the bank;
    
    to pay the minimum required principal payments in respect of Tranche A advances and
Tranche B advances, in that order;
    
    to prepay outstanding Tranche A advances;
    
    to prepay outstanding Tranche B advances;
    
    to prepay Unrestructured Debt (excluding that owed to BOS);
    
    in the case of Franklin Credit, to repay Tranche D advances, any letter of credit
exposure, and any obligations in respect of any interest rate hedge agreements with the
bank;
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
    
    in the case of Franklin Credit, 90% of the available cash flow to repay interest and
then principal of the Tranche C advances if Franklin Credit is acting as servicer of
the underlying collateral, or 100% otherwise; and,
    
    in the case of Franklin Credit and Tribeca, to pay any advances then outstanding in
respect of the others indebtedness to the bank, other than for Unrestructured Debt.
 Covenants; Events of Default.
 
    
    the Companys reimbursable expenses in the ordinary course of business during each
of the first two months after the date of the agreement would not exceed $2.5 million,
excluding reimbursement of certain bank expenses after the date of the Restructuring,
and thereafter, an amount provided for in an approved budget;
    
    the Company would not originate or acquire mortgage loans or other assets, perform
due diligence or servicing, broker loans, or participate in off-balance sheet joint
ventures and special purpose vehicles, without the prior consent of the bank;
    
    the Company would use its best efforts to obtain interest rate hedges acceptable to
the bank in respect of the $1 billion of Tranche A indebtedness;
    
    the Company would not make certain restricted payments to its stockholders or
certain other related parties;
    
    the Company would not engage in certain transactions with affiliates;
    
    the Company would not incur additional indebtedness other than trade payables and
subordinated indebtedness;
    
    the Company together would maintain a minimum consolidated net worth of at least $5
million, plus a certain percentage, to be mutually agreed upon, of any equity
investment in the Company after the date of the Restructuring;
    
    the Company would together maintain a minimum liquidity of $5 million;
    
    the Company would maintain prescribed interest coverage ratios based on EBITDA (as
defined) to Interest Expense (as defined);
    
    the Company would not enter into mergers, consolidations or sales of assets (subject
to certain exceptions); and,
    
    the Company would not, without the banks consent, enter into any material change in
its capital structure that the bank or a nationally recognized independent public
accounting firm determine could cause a consolidation of its assets with other persons
under relevant accounting regulations.
  Servicing.
  84




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Security.
 March 2008 Modifications to Forbearance Agreements and Refinancing of BOS Loan
    
    
    to provide that Tranche C interest would not accrue until the first business day
after all outstanding amounts under the Tranche A facility have been paid in full;
    
    to increase the Tranche C interest rate to 20% from and after such time it would
begin to accrue;
    
    to extend an additional period of forbearance through July 31, 2008, from May 15,
2008, in respect of the remaining Unrestructured Debt; and,
    
    to increase the maximum availability under the Tranche D line of credit to
$10,000,000 for working capital and general corporate purposes to enable the Company to
purchase real property in which it had a lien, and for purposes of meeting licensing
requirements.
    85




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##### Table of Contents



August 2008 Modification to Forbearance Agreements
  Unrestructured Debt
  December 2008 Modification to Forbearance Agreements
  
    
    Franklin Asset became a borrower under the Companys lending agreements with
Huntington;
 
    
    Newly formed trusts became guarantors for the Borrowers indebtedness to Huntington;
 
    
    FCMC, Franklin Asset and the newly formed trusts each pledged its assets, including
any equity interests in any of the Borrowers, as security for the Borrowers
indebtedness to Huntington;
 
    
    Franklin Servicing LLC agreed to service, if necessary, the Companys mortgage loans
in selected states;
  86




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##### Table of Contents




    
    the Company agreed to maintain in effect one or more interest rate hedge agreements
in an aggregate notional principal amount of not less than $1 billion, or such lesser
amount as Huntington in its sole discretion might approve;
 
    
    the Companys Tranche D facility was amended to provide for (i) a revolving credit
facility and letter of credit facility in the aggregate outstanding amount of $10
million, with a sublimit of $5 million, and, in addition, (ii) a separate letter of
credit facility pursuant to
which Huntington could issue letters of credit in its discretion, with a sublimit of
$5.5 million;
 
    
    Huntington agreed to waive the Companys breach of covenant to comply with all laws,
rules and regulations to the extent such breach results from the Companys failure to
satisfy a minimum net worth requirement; and,
 
    
    the covenant requiring FCMC and each of the Borrowers to maintain liquidity of at
least $5 million was deleted.
  
    
    Franklin Holding became a guarantor for the Borrowers indebtedness to Huntington;
and,
 
    
    Franklin Holding pledged its assets, including any equity interests in any of the
Borrowers, as security for the Borrowers indebtedness to Huntington.
 The Forbearance Agreements and the March 2009 Restructuring and Modifications to the Franklin
Forbearance Agreement in April, August and November 2009, and on March 26, 2010
    87




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Franklin Master Credit Facility  Term Loans
  General.
 Covenants; Events of Default.
 Security .
 Interest Rate Caps
   88




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##### Table of Contents



Interest Rate Swaps
       Estimated FairNotional Amount
    
    Term
    
    
    Maturity Date
    
    
    Fixed Rate
    
    
    Value*$
    275,000,000
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (9,380,699
    )70,000,000
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (1,917,039
    )45,000,000
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (1,846,853
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,144,591
    )
 
 *
    
    Determined in accordance with Topic 820, Fair Value Measurements and Disclosures, based
upon a Level 2 valuation methodology.  89




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Safe Harbor Statement
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
   90




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##### Table of Contents



Interest Rate Risk
       91




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##### Table of Contents



Real Estate Risk
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A (T).
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Managements Annual Report on Internal Control Over Financial Reporting
    92




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##### Table of Contents



ITEM 9B.
    
    OTHER INFORMATION
   93




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Number of securitiesremaining available forNumber of securities to
    
    
    Weighted average
    
    
    future issuance under equitybe issued upon exercise of
    
    
    exercise price of
    
    
    compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    301,000
    
    
    $
    3.81
    
    
    
    449,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    301,000
    
    
    $
    3.81
    
    
    
    449,000
   94




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##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
   95




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1)
    
    Financial Statements.
  (2)
    
    Financial Statement Schedules.
  (3)
    
    Exhibits.
 ExhibitNumber3.1
    
    
    First Amended and Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the Commission) on
December 24, 2008.3.2
    
    
    Amended and Restated By-laws. Incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K,
filed with the Commission on December 24, 2008.10.1
    
    
    Master Credit and Security Agreement, dated as of October
13, 2004, between the Registrant and Sky Bank (the Master
Credit Agreement). Incorporated by reference to Exhibit
10.1 to the Registrants Registration Statement on Form S-1
(File No. 333-125681), filed with the Commission on June 9,
2005 (the Registration Statement).10.2
    
    
    Amendment to the Master Credit Agreement, dated as of
December 30, 2004 between the Registrant and Sky Bank.
Incorporated by reference to Exhibit 10.2 to the
Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2004, filed with the Commission on April
8, 2005 (the 2004 10-K).10.3
    
    
    1996 Stock Incentive Plan, as amended. Incorporated by
reference to Exhibit 4.1 to the Registrants Registration
Statement on Form S-8 (File No. 333-122677), filed with the
Commission on February 10, 2005.10.4
    
    
    Employment Agreement, effective as of March 28, 2005,
between the Registrant and Paul D. Colasono. Incorporated
by reference to Exhibit 10.1 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 2005, filed with the Commission on May 16, 2005 (the
First Quarter 10-Q).10.5
    
    
    Restricted Stock Grant Agreement, dated as of April 13,
2005, between the Registrant and Paul D. Colasono.
Incorporated by reference to Exhibit 10.2 to the First
Quarter 10-Q.10.6
    
    
    Lease, dated July 27, 2005, between the Registrant and 101
Hudson Leasing Associates. Incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form
8-K, filed with the Commission on July 29, 2005.10.7
    
    
    Franklin Credit Management Corporation 2006 Stock Incentive
Plan. Incorporated by reference to Exhibit 99.1 of the
Registrants Revised Definitive Proxy Statement on Schedule
14A, filed with the Commission on May 3, 2006.
  96




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##### Table of Contents



ExhibitNumber10.8
    
    
    Assignment and Assumption of Lease Landlord Consent and
Lease Modification Agreement, dated as of February 22,
2007, among The New York Mortgage Company, LLC, Tribeca
Lending Corp., and First States Investors 5200 LLC.
Incorporated by reference to Exhibit 10.37 to the
Registrants Annual Report Form 10-K for the fiscal year
ended December 31, 2006, filed with the Commission on April
2, 2007.10.9
    
    
    Limited Waiver, dated as of November 15, 2007, between The
Huntington National Bank, successor by merger to Sky Bank
(Huntington), the Company and each subsidiary of the
Company listed on the signature pages thereof.
Incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed with the
Commission on November 15, 2007.10.10
    
    
    Limited Waiver, dated as of November 15, 2007, between
Huntington, Tribeca and each subsidiary of the Company
listed on the signature pages thereof. Incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K, filed with the Commission on November
15, 2007.10.11
    
    
    Security Agreement, dated as of November 15, 2007, by the
Company and each of the entities listed on the signature
pages thereof in favor of Huntington. Incorporated by
reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K, filed with the Commission on November
15, 2007.10.12
    
    
    Forbearance Agreement and Amendment to Credit Agreements,
dated December 28, 2007, by and among the borrowers listed
on Schedule 1 thereof, Franklin Credit Management
Corporation and The Huntington National Bank. Incorporated
by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed with the Commission on January 4,
2008.10.13
    
    
    Tranche A Note, dated December 28, 2007, by the borrowers
listed on Schedule 1 to the Forbearance Agreement, in favor
of The Huntington National Bank. Incorporated by reference
to Exhibit 10.2 to the Registrants Current Report on Form
8-K, filed with the Commission on January 4, 2008.10.14
    
    
    Form of Tranche B Note, dated December 28, 2007, by the
borrowers listed on Schedule 1 to the Forbearance
Agreement, in favor of The Huntington National Bank.
Incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed with the
Commission on January 4, 2008.10.15
    
    
    Tranche C Note, dated December 28, 2007, by the borrowers
listed on Schedule 1 to the Forbearance Agreement, in favor
of The Huntington National Bank. Incorporated by reference
to Exhibit 10.4 to the Registrants Current Report on Form
8-K, filed with the Commission on January 4, 2008.10.16
    
    
    Tranche D Note, dated December 28, 2007, by the borrowers
listed on Schedule 1 to the Forbearance Agreement, in favor
of The Huntington National Bank. Incorporated by reference
to Exhibit 10.5 to the Registrants Current Report on Form
8-K, filed with the Commission on January 4, 2008.10.17
    
    
    Letter Agreement, dated January 3, 2008, by and among the
borrowers listed on Schedule 1 to the Forbearance
Agreement, Franklin Credit Management Corporation and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.6 to the Registrants Current Report on Form
8-K, filed with the Commission on January 4, 2008.10.18
    
    
    Tribeca Forbearance Agreement and Amendment to Credit
Agreements, dated December 28, 2007, by and among the
borrowers listed on Schedule 1 thereof, including without
limitation Tribeca Lending Corp. and Franklin Credit
Management Corporation, and The Huntington National Bank.
Incorporated by reference to Exhibit 10.7 to the
Registrants Current Report on Form 8-K, filed with the
Commission on January 4, 2008.
  97




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ExhibitNumber10.19
    
    
    Tranche A Note, dated December 28, 2007, by the borrowers
listed on Schedule 1 to the Tribeca Forbearance Agreement,
in favor of The Huntington National Bank. Incorporated by
reference to Exhibit 10.8 to the Registrants Current
Report on Form 8-K, filed with the Commission on January 4,
2008.10.20
    
    
    Form of Tranche B Note, dated December 28, 2007, by the
borrowers listed on Schedule 1 to the Tribeca Forbearance
Agreement, in favor of The Huntington National Bank.
Incorporated by reference to Exhibit 10.9 to the
Registrants Current Report on Form 8-K, filed with the
Commission on January 4, 2008.10.21
    
    
    Guaranty, dated as of December 28, 2007, by Franklin Credit
Management Corporation in favor of The Huntington National
Bank. Incorporated by reference to Exhibit 10.10 to the
Registrants Current Report on Form 8-K, filed with the
Commission on January 4, 2008.10.22
    
    
    Guaranty, dated as of December 28, 2007, by Franklin Credit
Management Corporation in favor of The Huntington National
Bank. Incorporated by reference to Exhibit 10.11 to the
Registrants Current Report on Form 8-K, filed with the
Commission on January 4, 2008.10.23
    
    
    Security Agreement, dated as of December 28, 2007, by
Tribeca Lending Corp. and each of the entities listed on
the signature pages thereof, in favor of The Huntington
National Bank. Incorporated by reference to Exhibit 10.12
to the Registrants Current Report on Form 8-K, filed with
the Commission on January 4, 2008.10.24
    
    
    ISDA Master (Swap) Agreement between the Registrant and the
Huntington National Bank, dated as of February 27, 2008 and
the Schedule thereto. Incorporated by reference to Exhibit
10.37 to the Registrants Annual Report Form 10-K for the
fiscal year ended December 31, 2006, filed with the
Commission on April 2, 2007.10.25
    
    
    Joinder and Amendment No. 1 to Forbearance Agreement, dated
as of March 31, 2008, by and among the borrowers listed on
Schedule 1 thereto, Franklin Credit Management Corporation
and The Huntington National Bank. Incorporated by
reference to Exhibit 10.55 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 2008, filed with the Commission on May 15, 2008.10.26
    
    
    Second Amended and Restated Tranche D Note, dated March 31,
2008, by the borrowers listed on Schedule 1 to the
Forbearance Agreement, in favor of The Huntington National
Bank. Incorporated by reference to Exhibit 10.56 to the
Registrants Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2008, filed with the
Commission on May 15, 2008.10.27
    
    
    Joinder and Amendment No. 1 to Tribeca Forbearance
Agreement, dated March 31, 2008, by and among the borrowers
listed on Schedule 1 thereof, including without limitation
Tribeca Lending Corp. and Franklin Credit Management
Corporation, and The Huntington National Bank.
Incorporated by reference to Exhibit 10.57 to the
Registrants Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2008, filed with the
Commission on May 15, 2008.10.28
    
    
    Participation Agreement, dated March 31, 2008, by and
between The Huntington National Bank, BOS (USA) Inc., and
Tribeca Lending Corp. and its subsidiaries. Incorporated
by reference to Exhibit 10.58 to the Registrants Current
Report on Form 10-Q, dated as of March 31, 2008.10.29
    
    
    Second Amended and Restated Tranche A Note, dated March 31,
2008, by the borrowers listed on Schedule 1 to the
Forbearance Agreement, in favor of The Huntington National
Bank. Incorporated by reference to Exhibit 10.59 to the
Registrants Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2008, filed with the
Commission on May 15, 2008.
  98




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ExhibitNumber10.30
    
    
    Confirmation Letters, dated February 27, 2008, to the ISDA
Master (Swap) Agreement between Franklin Credit Management
Corporation and The Huntington National Bank, dated as of
February 27, 2008. Incorporated by reference to Exhibit
10.64 to the Registrants Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2008, filed with the
Commission on August 19, 2008.10.31
    
    
    Confirmation Letters, dated April 30, 2008, to the ISDA
Master (Swap) Agreement between Franklin Credit Management
Corporation and The Huntington National Bank, dated as of
February 27, 2008. Incorporated by reference to Exhibit
10.65 to the Registrants Quarterly Report, on Form 10-Q
for the quarterly period ended June 30, 2008, filed with
the Commission on August 19, 2008.10.32
    
    
    Loan Servicing Agreement, dated May 28, 2008, by and
between Franklin Credit Management Corporation and Bosco
Credit LLC (portions of this exhibit have been omitted and
separately filed with the Commission with a request for
confidential treatment). Incorporated by reference to
Exhibit 10.66 to the Registrants Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2008, filed
with the Commission on August 19, 2008.10.33
    
    
    Amendment No. 2 to Forbearance Agreement, dated August 15,
2008, between the borrowers listed on Schedule 1 thereof,
Franklin Credit Management Corporation and The Huntington
National Bank. Incorporated by reference to Exhibit 10.67
to the Registrants Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2008, filed with the
Commission on August 19, 2008.10.34
    
    
    Amendment No. 2 to Tribeca Forbearance Agreement, dated
August 15, 2008, between the borrowers listed on Schedule 1
thereof, including without limitation Tribeca Lending
Corp., Franklin Credit Management Corporation and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.68 to the Registrants Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2008, filed
with the Commission on August 19, 2008.10.35
    
    
    Pledge, Assignment and Security Agreement, dated August 15,
2008, by Franklin Credit Management Corporation in favor of
The Huntington National Bank. Incorporated by reference to
Exhibit 10.69 to the Registrants Quarterly Report Form
10-Q for the quarterly period ended June 30, 2008, filed
with the Commission on August 19, 2008.10.36
    
    
    Form of Acknowledgement. Incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form
8-K, filed with the Commission on December 24, 2008.10.37
    
    
    Master Trust Agreement, dated as of December 15, 2008, by
and among Franklin Credit Management Corporation, Tribeca
Lending Corp., Deutsche Bank National Trust Company, and
Deutsche Bank National Trust Company Delaware.
Incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.38
    
    
    First Amended and Restated Forbearance Agreement and
Amendment to Credit Agreements, dated as of December 19,
2008, by and among the borrowers listed on Schedule 1
thereto, Franklin Credit Management Corporation, Franklin
Credit Asset Corporation, Franklin Credit Holding
Corporation and The Huntington National Bank. Incorporated
by reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K, filed with the Commission on December
24, 2008.
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ExhibitNumber10.39
    
    
    First Amended and Restated Tribeca Forbearance Agreement
and Amendment to Credit Agreements, dated as of December
19, 2008, by and among the borrowers listed on Schedule 1
thereto, Tribeca Lending Corp., Franklin Credit Management
Corporation, Franklin Credit Holding Corporation and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.4 to the Registrants Current Report on Form
8-K, filed with the Commission on December 24, 2008.10.40
    
    
    Guaranty, dated as of December 19, 2008, by and between
Franklin Credit Holding Corporation and The Huntington
National Bank. Incorporated by reference to Exhibit 10.5
to the Registrants Current Report on Form 8-K, filed with
the Commission on December 24, 2008.10.41
    
    
    Guaranty, dated as of December 19, 2008, by and between
Franklin Credit Holding Corporation and The Huntington
National Bank. Incorporated by reference to Exhibit 10.6
to the Registrants Current Report on Form 8-K, filed with
the Commission on December 24, 2008.10.42
    
    
    Guaranty, dated as of December 19, 2008, by and between
Franklin Credit Trust Series I and The Huntington National
Bank. Incorporated by reference to Exhibit 10.7 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.43
    
    
    Guaranty, dated as of December 19, 2008, by and between
Franklin Credit Trust Series I and The Huntington National
Bank Incorporated by reference to Exhibit 10.8 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.44
    
    
    Guaranty, dated as of December 19, 2008, by and between
Tribeca Lending Trust Series I and The Huntington National
Bank. Incorporated by reference to Exhibit 10.9 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.45
    
    
    Guaranty, dated as of December 19, 2008, by and between
Tribeca Lending Trust Series I and The Huntington National
Bank. Incorporated by reference to Exhibit 10.10 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.46
    
    
    Joinder Agreement No. 3 (Franklin), dated as of December
19, 2008, by Franklin Credit Asset Corporation, Franklin
Credit Holding Corporation and The Huntington National
Bank. Incorporated by reference to Exhibit 10.11 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.47
    
    
    Joinder Agreement No. 3 (Tribeca), dated as of December 19,
2008, by Tribeca Lending Corp., Franklin Credit Asset
Corporation, Franklin Credit Holding Corporation and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.12 to the Registrants Current Report on Form
8-K, filed with the Commission on December 24, 2008.10.48
    
    
    Pledge Amendment (Franklin), dated as of December 19, 2008,
by and among Franklin Credit Management Corporation, the
parties listed on Schedule A thereto, Franklin Credit Asset
Corporation, Franklin Credit Holding Corporation and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.13 to the Registrants Current Report on Form
8-K, filed with the Commission on December 24, 2008.10.49
    
    
    Pledge Amendment (Tribeca), dated as of December 19, 2008,
by and among Tribeca Lending Corp., the parties listed on
Schedule A thereto, Franklin Credit Asset Corporation,
Franklin Credit Holding Corporation and The Huntington
National Bank. Incorporated by reference to Exhibit 10.14
to the Registrants Current Report on Form 8-K, filed with
the Commission on December 24, 2008.
  100




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ExhibitNumber10.50
    
    
    Pledge Amendment (Franklin Trust Certificate), dated as of
December 19, 2008, by and among Franklin Credit Management
Corporation, the parties listed on Schedule A thereto,
Franklin Credit Asset Corporation, Franklin Credit Holding
Corporation and The Huntington National Bank. Incorporated
by reference to Exhibit 10.15 to the Registrants Current
Report on Form 8-K, filed with the Commission on December
24, 2008.10.51
    
    
    Security Agreement, dated as of December 19, 2008, by and
between Franklin Credit Trust Series I and The Huntington
National Bank. Incorporated by reference to Exhibit 10.16
to the Registrants Current Report on Form 8-K, filed with
the Commission on December 24, 2008.10.52
    
    
    Security Agreement, dated as of December 19, 2008, by and
between Tribeca Lending Trust Series I and The Huntington
National Bank. Incorporated by reference to Exhibit 10.17
to the Registrants Current Report on Form 8-K, filed with
the Commission on December 24, 2008.10.53
    
    
    Assignment Agreement, dated as of December 19, 2008, by and
among Franklin Credit Management Corporation, Franklin
Credit Holding Corporation and The Huntington National Bank
Incorporated by reference to Exhibit 10.18 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.54
    
    
    Guaranty, dated as of December 19, 2008, by and between
Tribeca Lending Corporation and The Huntington National
Bank. Incorporated by reference to Exhibit 10.19 to the
Registrants Current Report on Form 8-K, filed with the
Commission on December 24, 2008.10.55
    
    
    Amendment to Employment Agreement, dated as of December 30,
2008, by and between Franklin Credit Management Corporation
and Paul Colasono. Incorporated by reference to Exhibit
10.90 to the Registrants Current Report on Form 8-K, filed
with the Commission on January 5, 2009.10.56
    
    
    First Amendment to Loan Servicing Agreement, dated as of
February 27, 2009, by and between Franklin Credit
Management Corporation and Bosco Credit, LLC. Incorporated
by reference to Exhibit 10.89 to the Registrants Annual
Report Form 10-K for the annual period ended December 31,
2008, filed with the Commission on April 10, 2009.10.57
    
    
    Trust Agreement by and among Franklin Credit Asset
Corporation, Franklin Credit Management Corporation,
Tribeca Lending Corp. and each of their respective
subsidiaries, as Depositors, and The Huntington National
Bank, as Certificate Trustee, and Wilmington Trust Company,
as Owner Trustee, dated March 31, 2009. Incorporated by
reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.10.58
    
    
    Transfer and Assignment Agreement by and among Franklin
Mortgage Asset Trust 2009-A, Franklin Credit Asset
Corporation, Franklin Credit Management Corporation,
Tribeca Lending Corp. and each of their respective
subsidiaries dated March 31, 2009. Incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.10.59
    
    
    Contribution Agreement by and among Franklin Asset, LLC and
Franklin Asset Merger Sub, LLC dated March 31, 2009.
Incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 6, 2009.10.60
    
    
    Agreement and Plan of Merger by and among Huntington
Capital Financing, LLC, HCFFL, LLC, Franklin Asset, LLC,
Franklin Credit Holding Corporation, Franklin Credit Asset
Corporation, Tribeca Lending Corp. and each of their
respective subsidiaries dated March 31, 2009. Incorporated
by reference to Exhibit 10.4 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.
  101




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ExhibitNumber10.61
    
    
    Amended and Restated Credit Agreement (Legacy) by and among
Franklin Credit Asset Corporation, Tribeca Lending Corp.
and the Other Borrowers Party hereto as Borrowers, the
Financial Institutions Party hereto as Lenders, and the
Huntington National Bank, as Administrative Agent, dated
March 31, 2009. Incorporated by reference to Exhibit 10.5
to the Registrants Current Report on Form 8-K, filed with
the Commission on April 6, 2009.10.62
    
    
    The Limited Recourse Guarantee, dated as of March 3, 2009,
made by Franklin Credit Holding Corporation in favor of The
Huntington National Bank. Incorporated by reference to
Exhibit 10.6 to the Registrants Current Report on Form
8-K, filed with the Commission on April 6, 2009.10.63
    
    
    The Limited Recourse Guarantee, dated as of March 31, 2009,
made by Franklin Credit Management Corporation in favor The
Huntington National Bank. Incorporated by reference to
Exhibit 10.7 to the Registrants Current Report on Form
8-K, filed with the Commission on April 6, 2009.10.64
    
    
    The Amended and Restated Security Agreement, dated as of
March 31, 2009, by and among the Borrowers and The
Huntington National Bank. Incorporated by reference to
Exhibit 10.8 to the Registrants Current Report on Form
8-K, dated as of April 6, 2009.10.65
    
    
    The Amended and Restated Pledge Agreement, dated as of
March 31, 2009, by and between Franklin Credit Holding
Corporation and The Huntington National Bank. Incorporated
by reference to Exhibit 10.9 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.10.66
    
    
    The Amended and Restated Pledge, Assignment and Security
Agreement, dated as of March 31, 2009, by and between
Franklin Credit Management Corporation and The Huntington
National Bank. Incorporated by reference to Exhibit 10.10
to the Registrants Current Report on Form 8-K, filed with
the Commission on April 6, 2009.10.67
    
    
    The Investment Property Security Agreement, dated as of
March 31, 2009, by and between Franklin Credit Management
Corporation and The Huntington National Bank. Incorporated
by reference to Exhibit 10.11 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.10.68
    
    
    Amended and Restated Credit Agreement (Licensing) by and
among Franklin Credit Management Corporation and Franklin
Credit Holding Corporation as Borrowers, the Financial
Institutions Party hereto as Lenders, and the Huntington
National Bank, as Administrative Agent, dated March 31,
2009. Incorporated by reference to Exhibit 10.12 to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 6, 2009.10.69
    
    
    The Amended and Restated Security Agreement (Licensing),
dated as of March 31, 2009, by and between Franklin Credit
Management Corporation and The Huntington National Bank.
Incorporated by reference to Exhibit 10.13 to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 6, 2009.10.70
    
    
    Servicing Agreement by and among Franklin Mortgage Asset
Trust 2009-A and Franklin Credit Management Corporation
dated March 31, 2009 (portions of this exhibit have been
omitted and separately filed with the Commission with a
request for confidential treatment). Incorporated by
reference to Exhibit 10.14 to the Registrants Current
Report on Form 8-K, filed with the Commission on April 6,
2009.
  102




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ExhibitNumber10.71
    
    
    Amendment No. 1 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, dated as of
April 20, 2009, by and among Franklin Credit Holding
Corporation, Franklin Credit Management Corporation,
Franklin Credit Asset Corporation, Flow 2006 F Corp., FCMC
2006 M Corp., FCMC 2006 K Corp. and The Huntington National
Bank. Incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed with the
Commission on April 22, 2009.10.72
    
    
    Amendment No. 2 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, dated as of
August 10, 2009, by and among the Registrant, Franklin
Credit Asset Corporation, Flow 2006 F Corp., FCMC 2006 M
Corp., FCMC 2006 K Corp. and The Huntington National Bank.
Incorporated by reference to Exhibit 10.100 to the
Registrants Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2009, filed with the
Commission on August 14, 2009.10.73
    
    
    Separation Agreement and General Release, effective October
15, 2009, by and among the Registrant, Franklin Credit
Management Corporation, Tribeca Lending Corp. and William
F. Sullivan. Incorporated by reference to Exhibit 10.101
to the Registrants Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009, filed with the
Commission on November 16, 2009.10.74
    
    
    Second Amendment to Loan Servicing Agreement, dated October
29, 2009, by and between Franklin Credit Management
Corporation and Bosco Credit LLC (portions of this exhibit
have been omitted and separately filed with the Commission
with a request for confidential treatment). Incorporated
by reference to Exhibit 10.102 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2009, filed with the Commission on
November 16, 2009.10.75
    
    
    Amendment No. 3 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, effective as
of September 30, 2009, by and among the Registrant,
Franklin Credit Asset Corporation, Flow 2006 F Corp., FCMC
2006 M Corp., FCMC 2006 K Corp. and The Huntington National
Bank. Incorporated by reference to Exhibit 10.103 to the
Registrants Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009, filed with the
Commission on November 16, 2009.10.76
    *
    
    Amendment No. 4 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, effective as
of March 26, 2010, by and among the Registrant, Franklin
Credit Asset Corporation, Flow 2006 F Corp., FCMC 2006 M
Corp., FCMC 2006 K Corp. and The Huntington National Bank.10.77
    *
    
    Amendment No. 1 to Amended and Restated Credit Agreement
(Licensing) by and among Franklin Credit Management
Corporation and Franklin Credit Holding Corporation as
Borrowers, the Financial Institutions Party hereto as
Lenders, and the Huntington National Bank, as
Administrative Agent, dated March 26, 2010.16.1
    
    
    Letter of Deloitte & Touche LLP dated September 2, 2009
regarding change in certifying accountant. Incorporated by
reference to Exhibit 16.1 to the Registrants Current
Report on Form 8-K, filed with the Commission on September
4, 2009.21.1
    *
    
    Subsidiaries of the Registrant.23.1
    *
    
    Consent of Independent Registered Public Accounting Firm.23.2
    *
    
    Consent of Independent Registered Public Accounting Firm.31.1
    *
    
    Rule 13a-14(a) Certification of Chief Executive Officer of
the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.
  103




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ExhibitNumber31.2
    *
    
    Rule 13a-14(a) Certification of Chief Financial Officer of
the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    *
    
    Section 1350 Certification of Chief Executive Officer of
the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    *
    
    Section 1350 Certification of Chief Financial Officer of
the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.  104




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##### Table of Contents



SIGNATURES
  March 31, 2010
    FRANKLIN CREDIT HOLDING CORPORATIONBy:
    /s/ THOMAS J. AXONPrincipal Executive Officer  Signature
    
    Title
    
    Date/s/ THOMAS J. AXON

Thomas J. Axon
    
    President and Chairman of the Board
(Principal Executive Officer)
    
    March 31, 2010/s/ PAUL D. COLASONO

Paul D. Colasono
    
    Executive Vice President and Chief Financial Officer

(Principal Financial Officer)
    
    March 31, 2010/s/ KIMBERLEY SHAW

Kimberley Shaw
    
    Senior Vice President and Treasurer

(Controller)
    
    March 31, 2010/s/ MICHAEL BERTASH

Michael Bertash
    
    Director
    
    March 31, 2010/s/ FRANK EVANS

Frank Evans
    
    Director
    
    March 31, 2010/s/ STEVEN LEFKOWITZ

Steven Lefkowitz
    
    Director
    
    March 31, 2010/s/ ALLAN R. LYONS

Allan R. Lyons
    
    Director
    
    March 31, 2010
  105




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 TABLE OF CONTENTS
 PageReports of Independent Registered Public Accounting FirmsConsolidated Financial Statements:Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    F-2Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Stockholders (Deficit) for the years ended December 31, 2009
and 2008
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-7




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llp




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    15,963,115
    
    
    $
    21,426,777Restricted cash
    
    
    2,611,640
    
    
    
    27,890,706Investment in REIT securities
    
    
    477,316,409
    
    
    
    Investment in trust certificates at fair value
    
    
    69,355,735
    
    
    
    Mortgage loans and real estate held for sale
    
    
    345,441,865
    
    
    
    Notes Receivable:Principal
    
    
    
    
    
    
    1,021,648,291Purchase discount
    
    
    
    
    
    
    (9,777,475
    )Allowance for loan losses
    
    
    
    
    
    
    (471,093,159
    )Net notes receivable
    
    
    
    
    
    
    540,777,657Notes receivable held for sale, net
    
    
    3,575,323
    
    
    
    Originated loans held for investment:Principal, net of deferred fees and costs
    
    
    
    
    
    
    391,704,319Allowance for loan losses
    
    
    
    
    
    
    (49,876,092
    )Originated loans held for investment, net
    
    
    
    
    
    
    341,828,227Accrued interest receivable
    
    
    41,337
    
    
    
    10,055,241Other real estate owned
    
    
    
    
    
    
    60,748,390Deferred financing costs, net
    
    
    7,287,536
    
    
    
    7,824,432Other receivables
    
    
    3,233,676
    
    
    
    7,028,334Building, furniture and equipment, net
    
    
    1,529,418
    
    
    
    2,042,436Income tax receivable
    
    
    5,592,370
    
    
    
    2,126,590Other assets
    
    
    692,730
    
    
    
    634,652Total assets
    
    $
    932,641,154
    
    
    $
    1,022,383,442LIABILITIES AND STOCKHOLDERS (DEFICIT)Liabilities:Notes payable, net of debt discount of $191,511 in 2009 and
$205,976 in 2008
    
    $
    1,367,199,323
    
    
    $
    1,442,126,964Financing agreement
    
    
    1,000,000
    
    
    
    1,958,011Nonrecourse liability
    
    
    345,441,865
    
    
    
    Accounts payable and accrued expenses
    
    
    4,466,779
    
    
    
    15,056,870Derivative liabilities, at fair value
    
    
    13,144,591
    
    
    
    27,753,436Terminated derivative liability
    
    
    8,200,000
    
    
    
    Total liabilities
    
    
    1,739,452,558
    
    
    
    1,486,895,281Commitments and ContingenciesStockholders (Deficit):Preferred stock, $.001 par value; authorized 3,000,000; issued  none
    
    
    
    
    
    
    Common stock and additional paid-in capital, $.01 par value,
22,000,000 authorized shares; issued and outstanding: 8,012,795 at
December 31, 2009 and 8,025,295 at December 31, 2008
    
    
    22,067,763
    
    
    
    23,383,120Noncontrolling interest in subsidiary
    
    
    1,657,275
    
    
    
    Accumulated other comprehensive (loss)
    
    
    (12,310,764
    )
    
    
    (27,753,436
    )Retained (deficit)
    
    
    (818,225,678
    )
    
    
    (460,141,523
    )Total stockholders (deficit)
    
    
    (806,811,404
    )
    
    
    (464,511,839
    )Total liabilities and stockholders (deficit)
    
    $
    932,641,154
    
    
    $
    1,022,383,442
   F-2




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 2009
    
    
    2008REVENUES:Interest income
    
    $
    58,098,774
    
    
    $
    93,100,602Dividend income
    
    
    32,020,353
    
    
    
    Purchase discount earned
    
    
    392,127
    
    
    
    2,590,174Gain on recovery from contractual loan purchase rights
    
    
    30,550,000
    
    
    
    (Loss) on mortgage loans and real estate held for sale
    
    
    (282,593,653
    )
    
    
    (Loss) on valuation of investments in trust certificates
and notes receivable held for sale
    
    
    (62,651,940
    )
    
    
    Fair valuation adjustments
    
    
    (27,221,418
    )
    
    
    Gain on sale of other real estate owned
    
    
    374,344
    
    
    
    2,213,998Servicing fees and other income
    
    
    6,276,769
    
    
    
    12,024,492Total revenues
    
    
    (244,754,644
    )
    
    
    109,929,266OPERATING EXPENSES:Interest expense
    
    
    74,279,677
    
    
    
    78,463,161Collection, general and administrative
    
    
    40,269,046
    
    
    
    48,487,940Provision for loan losses
    
    
    169,479
    
    
    
    458,121,989Amortization of deferred financing costs
    
    
    536,896
    
    
    
    983,657Depreciation
    
    
    646,410
    
    
    
    1,538,465Total expenses
    
    
    115,901,508
    
    
    
    587,595,212(Loss) before provision for income taxes
    
    
    (360,656,152
    )
    
    
    (477,665,946
    )Income tax (benefit)
    
    
    (2,839,516
    )
    
    
    (1,325,258
    )Net (loss)
    
    
    (357,816,636
    )
    
    
    (476,340,688
    )Net income attributed to noncontrolling interest
    
    
    267,519
    
    
    
    Net (loss) attributed to common stockholders
    
    $
    (358,084,155
    )
    
    $
    (476,340,688
    )NET (LOSS) PER COMMON SHARE:Basic and diluted
    
    $
    (44.74
    )
    
    $
    (59.67
    )WEIGHTED AVERAGE NUMBER OF SHARESOutstanding, basic and diluted
    
    
    8,003,420
    
    
    
    7,982,483
   F-3




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 AccumulatedCommon Stock and
    
    
    Noncontrolling
    
    
    Other
    
    
    RetainedAdditional Paid-in Capital
    
    
    Interest
    
    
    Comprehensive
    
    
    (Deficit)/Shares
    
    
    Amount
    
    
    in Subsidiary
    
    
    Loss
    
    
    Earnings
    
    
    TotalBALANCE, JANUARY 1, 2008
    
    
    8,025,295
    
    
    $
    23,091,510
    
    
    $
    
    
    
    $
    
    
    
    $
    16,199,165
    
    
    $
    39,290,675Stock-based compensation
    
    
    
    
    
    
    291,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291,610Net unrealized (losses) on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,753,436
    )
    
    
    
    
    
    
    (27,753,436
    )Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (476,340,688
    )
    
    
    (476,340,688
    )BALANCE, DECEMBER 31, 2008
    
    
    8,025,295
    
    
    $
    23,383,120
    
    
    $
    
    
    
    $
    (27,753,436
    )
    
    $
    (460,141,523
    )
    
    $
    (464,511,839
    )Stock-based compensation
    
    
    (12,500
    )
    
    
    170,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,633Initial transfer of noncontrolling interest
in subsidiary
    
    
    
    
    
    
    (1,710,490
    )
    
    
    1,710,490
    
    
    
    
    
    
    
    
    
    
    
    Net income attributed to minority interest
    
    
    
    
    
    
    
    
    
    
    267,519
    
    
    
    
    
    
    
    
    
    
    
    267,519Non-dividend distribution
    
    
    
    
    
    
    224,500
    
    
    
    (224,500
    )
    
    
    
    
    
    
    
    
    
    
    Noncontrolling interest distribution
    
    
    
    
    
    
    
    
    
    
    (96,234
    )
    
    
    
    
    
    
    
    
    
    
    (96,234
    )Amortization  unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,442,672
    
    
    
    
    
    
    
    15,442,672Net (loss) attributed to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (358,084,155
    )
    
    
    (358,084,155
    )BALANCE, DECEMBER 31, 2009
    
    
    8,012,795
    
    
    $
    22,067,763
    
    
    $
    1,657,275
    
    
    $
    (12,310,764
    )
    
    $
    (818,225,678
    )
    
    $
    (806,811,404
    )
    F-4




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) attributed to common shareholders
    
    $
    (358,084,155
    )
    
    $
    (476,340,688
    )Adjustments to reconcile income to net cash provided by/(used in) operating activities:Gain on sale of notes receivable
    
    
    
    
    
    
    Gain on sale of other real estate owned
    
    
    (374,344
    )
    
    
    (2,213,998
    )Depreciation
    
    
    646,410
    
    
    
    1,538,465Amortization of deferred costs and fees on originated loans, net
    
    
    48,215
    
    
    
    (512,511
    )Loss on mortgage loans and real estate held for sale
    
    
    282,593,653
    
    
    
    Fair valuation adjustments
    
    
    27,221,418
    
    
    
    Loss on valuation of investment in trust certificates and notes receivable held for sale
    
    
    62,651,940
    
    
    
    Principal collections on mortgage loans and real estate held for sale, net
    
    
    40,494,363
    
    
    
    Paid in kind interest
    
    
    24,750,648
    
    
    
    Proceeds from the sale of real estate held for sale
    
    
    49,645,962
    
    
    
    Amortization of deferred financing costs
    
    
    536,896
    
    
    
    983,657Amortization of debt discount
    
    
    14,465
    
    
    
    26,389Stock-based compensation
    
    
    170,633
    
    
    
    291,610Deferred tax provision
    
    
    
    
    
    
    (543,507
    )Purchase discount earned
    
    
    (392,127
    )
    
    
    (2,590,174
    )Provision for loan losses
    
    
    169,479
    
    
    
    458,121,989Noncontrolling interest in subsidiary
    
    
    267,519
    
    
    
    Changes in operating assets and liabilities:Accrued interest receivable
    
    
    1,435,434
    
    
    
    12,934,660Other receivables
    
    
    3,794,658
    
    
    
    (2,110,736
    )Income tax receivable
    
    
    (3,465,780
    )
    
    
    1,556,271Other assets
    
    
    (185,269
    )
    
    
    173,227Accounts payable and accrued expenses
    
    
    (9,756,264
    )
    
    
    (8,051,279
    )Terminated derivate liability
    
    
    8,200,000
    
    
    
    Net cash provided by/(used in) operating activities
    
    
    130,383,754
    
    
    
    (16,736,625
    )CASH FLOWS FROM INVESTING ACTIVITIES:Decrease in restricted cash
    
    
    25,279,066
    
    
    
    12,435,815Principal collections on notes receivable
    
    
    11,424,215
    
    
    
    82,758,686Principal collections on loans held for investment
    
    
    5,857,079
    
    
    
    60,070,709Put back of acquired notes receivable
    
    
    
    
    
    
    1,803,604Proceeds from short-term investments
    
    
    
    
    
    
    4,735,308Proceeds from sale of other real estate owned
    
    
    19,227,015
    
    
    
    43,823,094Purchase of building, furniture and fixtures
    
    
    (6,201
    )
    
    
    (217,594
    )Net cash provided by investing activities
    
    
    61,781,174
    
    
    
    205,409,622
   F-5




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 2009
    
    
    2008CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments of notes payable
    
    
    (99,692,754
    )
    
    
    (186,437,224
    )Proceeds from financing agreements
    
    
    2,017,052
    
    
    
    2,005,606Principal payments of financing agreements
    
    
    (2,975,063
    )
    
    
    (1,080,668
    )Dividend distribution
    
    
    (96,234
    )
    
    
    Payments on nonrecourse liability
    
    
    (96,881,591
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (197,628,590
    )
    
    
    (185,512,286
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (5,463,662
    )
    
    
    3,160,711CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    21,426,777
    
    
    
    18,266,066CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    15,963,115
    
    
    $
    21,426,777SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash payments for interest
    
    $
    45,118,607
    
    
    $
    84,113,492Cash payments for taxes
    
    $
    889,192
    
    
    $
    1,687,000NON-CASH INVESTING AND FINANCING ACTIVITY:Transfers to other real estate owned
    
    $
    20,566,414
    
    
    $
    90,096,019
   F-6




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##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 1.
    
    BASIS OF PRESENTATION AND BUSINESS
  Overview
 March 2009 Restructuring
   F-7




---



##### Table of Contents



Transfers and Servicing
 Going Concern
   F-8




---



##### Table of Contents



Operating Losses and Stockholders Deficit
    F-9




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##### Table of Contents



Licenses to Service Loans
   Franklins Business
     F-10




---



##### Table of Contents



Amendments to Lending Agreements Prior to Restructuring
         F-11




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis of Presentation
 Operating Segments Disclosures about Segments of an Enterprise and Related Information
 Noncontrolling Interest Consolidations Consolidated Financial Statements
 Loss Per Share
  F-12




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##### Table of Contents



Cash and Cash Equivalents
 Restricted Cash
 Investment in REIT Securities
 Investment in Trust Certificates
 Mortgage Loans and Real Estate Held for Sale Transfers and Servicing
  F-13




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##### Table of Contents



Nonrecourse Liability
 Fair Valuation Adjustments
 Notes Receivable Held for Sale
 Income Recognition on Investment in Trust Certificates and Mortgage Loans and Real Estate Held
for Sale
 Notes Receivable and Income Recognition
  F-14




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##### Table of Contents



Discounts on Acquired Loans Loans and Debt Securities
Acquired with Deteriorated Credit Quality
    Allowance for Loan Losses
  F-15




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##### Table of Contents



Originated Loans Held for Investment
  Other Real Estate Owned
 Derivatives Derivatives and Hedging
    F-16




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##### Table of Contents



Fair Value Measurements Fair Value Measurements and Disclosures
  Building, Furniture and Equipment
  F-17




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##### Table of Contents



Deferred Financing Costs
 Income Taxes Accounting for Income Taxes
 Servicing Fees and Other Income
 Dividend Income
 Fair Value of Financial Instruments Financial Instruments
  a.
    
    Cash, Restricted Cash, Accrued Interest Receivables, Other Receivable and Accrued
Interest Payable The carrying values reported in the consolidated balance sheets are a
reasonable estimate of fair value.
 b.
    
    Notes Receivable Fair value of the net note receivable portfolio is estimated by
discounting the estimated future cash flows using the interest method. The fair value of
notes receivable at December 31, 2008 approximated $304 million, which was based on an
independent valuation as of February 28, 2009.
 c.
    
    Loans Held for Investment The fair value of loans held for investment at December
31, 2008 approximated $274 million, which was based on an independent valuation as of
February 28, 2009.
  F-18




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##### Table of Contents



d.
    
    Short-term Borrowings The interest rates on financing agreements and other
short-term borrowings reset on a monthly basis; therefore, the carrying amounts of these
liabilities approximate their fair value.
 e.
    
    Long-term Debt The fair value of the Companys long-term debt (notes payable) at
December 31, 2008 approximated $578 million.
  Stock-Based Compensation Plans Share-Based
Payment
   Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures
  F-19




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##### Table of Contents



Consolidations
 Derivatives and Hedging
 Financial Instruments
 Subsequent Events
 Fair Value
Measurements and Disclosures
 Revenue Recognition  Multiple Deliverable Revenue
Arrangements Revenue Recognition 
Multiple-Element Arrangements
  F-20




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##### Table of Contents



3.
    
    INVESTMENT IN TRUST CERTIFICATES AT FAIR VALUE, MORTGAGE LOANS AND REAL ESTATE HELD FOR SALE,
AND NOTES RECEIVABLE HELD FOR SALE
  December 31, 2009Balance, January 1, 2009
    
    $
    Fair value designation at March 31, 2009
    
    
    95,832,753Trust distributions
    
    
    (17,647,303
    )Transfers (out)
    
    
    (10,794,569
    )Fair value adjustment, net
    
    
    1,964,854Balance, December 31, 2009
    
    $
    69,355,735
  December 31, 2009Balance, January 1, 2009
    
    $
    Fair value designation at March 31, 2009
    
    
    477,316,409REO sales
    
    
    (53,764,783
    )Principal payments
    
    
    (43,116,808
    )Loans written off
    
    
    (594,853
    )Fair value adjustments, net
    
    
    (34,398,100
    )Balance, December 31, 2009
    
    $
    345,441,865
  December 31, 2009Balance, January 1, 2009
    
    $
    Fair value designation at March 31, 2009
    
    
    4,141,487Principal payments
    
    
    (794,986
    )Loans written off
    
    
    (602,628
    )Fair value adjustments, net
    
    
    831,450Balance, December 31, 2009
    
    $
    3,575,323
  F-21




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##### Table of Contents



4.
    
    NOTES RECEIVABLE, ORIGINATED LOANS HELD FOR INVESTMENT, PURCHASE DISCOUNT AND ALLOWANCE FOR
LOAN LOSSES
   2008Real estate secured
    
    $
    974,530,982Manufactured and mobile homes
    
    
    14,704,899Unsecured
    
    
    32,412,4101,021,648,291Less:Purchase discount
    
    
    (9,777,475
    )Allowance for loan losses
    
    
    (471,093,159
    )Balance
    
    $
    540,777,657
  2008Real estate secured
    
    $
    394,016,324Consumer unsecured
    
    
    723,935Manufactured homes
    
    
    394,740,259Less:Net deferred costs and fees
    
    
    (3,035,940
    )Allowance for loan losses
    
    
    (49,876,092
    )Balance
    
    $
    341,828,227
  F-22




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##### Table of Contents



2009
    
    
    2008Allowance for loan losses, beginning of year
    
    $
    520,969,251
    
    
    $
    254,661,653Provision for loan losses
    
    
    169,479
    
    
    
    412,802,253Loans transferred to OREO
    
    
    (6,517,919
    )
    
    
    (25,150,881
    )Loans charged off
    
    
    (14,029,345
    )
    
    
    (122,260,110
    )Loans exchanged for trust certificates
    
    
    (481,453,374
    )
    
    
    Loans reclassified as loans held for sale
    
    
    (17,435,075
    )
    
    
    Other, net
    
    
    (1,703,017
    )
    
    
    916,336Allowance for loan losses, end of year
    
    $
    
    
    
    $
    520,969,251
   2008Total impaired notes receivable
    
    $
    615,159,200Allowance for loan losses related to impaired
notes receivable
    
    $
    340,368,461Interest income recognized
    
    $
    23,137,469Average balance of impaired notes receivable
during the year
    
    $
    472,685,854
  2008Total impaired loans held for investment
    
    $
    236,010,911Allowance for loan losses related to loans held for investment
    
    $
    40,328,866Interest income recognized
    
    $
    6,086,370Average balance of impaired loans held for investment during
the year
    
    $
    209,008,158
  F-23




---



##### Table of Contents



2009
    
    
    2008Accretable DiscountBalance, beginning of period
    
    $
    24,860,752
    
    
    $
    26,507,403Accretion
    
    
    (198,841
    )
    
    
    (1,646,651
    )Loans transferred to Huntington
    
    
    (24,131,696
    )
    
    
    Loans transferred to notes receivable held for sale
    
    
    (530,215
    )
    
    
    Balance, end of period
    
    $
    
    
    
    $
    24,860,752Nonaccretable DiscountBalance, beginning of period
    
    $
    97,603,366
    
    
    $
    102,141,880Net reductions relating to loans repurchased
    
    
    
    
    
    
    (123,760
    )Net reductions relating to loans charged off
    
    
    
    
    
    
    (1,379,028
    )Loans transferred to Huntington
    
    
    (93,655,391
    )
    
    
    Loans transferred to notes receivable held for sale
    
    
    (2,847,136
    )
    
    
    Loans transferred to OREO, other
    
    
    (1,100,839
    )
    
    
    (3,035,726
    )Balance, end of period
    
    $
    
    
    
    $
    97,603,366
   F-24




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##### Table of Contents



5.
    
    FAIR VALUATION ADJUSTMENTS
   Nine Months EndedDecember 31, 2009Valuation (loss) on OREO sold
    
    $
    (14,891,467
    )Valuation (loss) on mortgage loans and OREO
    
    
    (34,398,100
    )Valuation gain on nonrecourse liability
    
    
    34,398,100Other adjustments
    
    
    (12,329,951
    )(Loss) on valuation
    
    $
    (27,221,418
    )
  6.
    
    DERIVATIVES
 Derivatives and Hedging
     F-25




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##### Table of Contents



Notional Amount
    
    
    Term
    
    Maturity Date
    
    
    Fixed Rate
    
    
    Estimated Fair Value$
    275,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (9,380,699
    )70,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (1,917,039
    )45,000,000
    
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (1,846,853
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,144,591
    )
   2009
    
    
    2008Balance, January 1
    
    $
    (27,753,436
    )
    
    $
    Additions
    
    
    
    
    
    
    (5,048,748
    )Cash settlements
    
    
    14,317,132
    
    
    
    Fair value adjustments
    
    
    (7,908,287
    )
    
    
    (22,704,688
    )Terminated contracts
    
    
    8,200,000
    
    
    
    Balance, December 31
    
    $
    (13,144,591
    )
    
    $
    (27,753,436
    )
 7.
    
    FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures,
 
    
    Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
 
    
    Level 2 Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable for the asset
of liability, either directly or indirectly, for substantially the full term of the
financial instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted cash
flows.
 
    
    Level 3 Inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Fair values are initially valued based upon transaction
price and are adjusted to reflect exit values as evidenced by financing and sale
transactions with third parties.
   F-26




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##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Level 3Interest-rate swaps
    
    $
    
    
    
    $
    (13,144,591
    )
    
    $
    
    
    
    $
    Investment in trust certificates
    
    
    
    
    
    
    
    
    
    
    69,355,735
    
    
    
    Nonrecourse liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345,441,865
    )Total
    
    $
    
    
    
    $
    (13,144,591
    )
    
    $
    69,355,735
    
    
    $
    (345,441,865
    )
  Investments
    
    
    LiabilitiesBalance, January 1, 2009
    
    $
    
    
    
    $
    Additions
    
    
    151,189,198
    
    
    
    (477,316,409
    )Total recognized unrealized (losses)/gains
    
    
    (53,391,591
    )
    
    
    34,398,100Transfers in/(out)
    
    
    (10,794,569
    )
    
    
    594,853Distributions/payments
    
    
    (17,647,303
    )
    
    
    96,881,591Balance, December 31, 2009
    
    
    69,355,735
    
    
    $
    (345,441,865
    )
   Level 1
    
    
    Level 2
    
    
    Level 3Mortgage loans and real estate held for sale
    
    $
    
    
    
    $
    
    
    
    $
    345,441,865
 8.
    
    BUILDING, FURNITURE AND EQUIPMENT, NET
  2009
    
    
    2008Building and improvements
    
    $
    3,327,537
    
    
    $
    2,280,626Furniture and equipment
    
    
    657,883
    
    
    
    1,571,4043,985,420
    
    
    
    3,852,030Less accumulated depreciation
    
    
    (2,456,002
    )
    
    
    (1,809,594
    )$
    1,529,418
    
    
    $
    2,042,436
  F-27




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##### Table of Contents



9.
    
    NOTES PAYABLE
   Under the terms of creditIn accordance with the
    
    
    agreement excludedterms of the Legacy Credit
    
    
    from theAgreement
    
    
    Legacy Credit AgreementFHLB 30-day LIBOR advance rate plus 2.60%
    
    $
    
    
    
    $
    15,998,860FHLB 30-day LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    23,535,477LIBOR plus 2.25% (Tranche A)
    
    
    770,617,430
    
    
    
    LIBOR plus 2.75% (Tranche B)
    
    
    417,164,681
    
    
    
    15.00% fixed (Tranche C)
    
    
    140,074,386
    
    
    
    $
    1,327,856,497
    
    
    $
    39,534,337
    
    
    $39.5 million in Unrestructured Debt will mature on June 30, 2010 (extended for 90
days on March 26, 2010); and,
 
    
    $1.33 billion will mature on March 31, 2012 in accordance with the terms of the
Legacy Credit Agreement.
   F-28




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##### Table of Contents



March 2009 Restructuring
      F-29




---



##### Table of Contents



Background to the Restructuring.
   F-30




---



##### Table of Contents



Summary of the Restructuring.
 (1)
    
    in exchange for the transfer of that part of the Portfolio underlying the Bank
Trust Certificates (as defined below), the Company received common membership interests
and Class C preferred membership interests in the REIT having in the aggregate a value
intended to approximate the fair market value of that portion of the Portfolio
transferred to the Bank, which as of March 31, 2009 was approximately $477.3 million
(the REIT Securities). The preferred membership interests have a liquidation value
of $100,000 per unit and an annual cumulative dividend rate of 9% of such liquidation
value. Any dividends on the preferred shares shall be payable only out of funds
legally available for the payment thereof;
 (2)
    
    principal and interest payments in respect of the Legacy Credit Agreement are
only due and payable to the extent of cash flow of the Company, which cash flow would
include dividends declared and paid in respect of the REIT Securities or any other
assets of the Company, other than the retained interest in FCMC (as discussed below);
and,
 (3)
    
    the Banks recourse in respect of the Legacy Credit Agreement is limited to the
assets and stock of Franklin Holdings subsidiaries, excluding the assets of FCMC
(except for a first lien of the Bank on an office condominium unit and a second
priority lien of the Bank on cash collateral held as security under the Licensing
Credit Agreement) and a portion of FCMCs stock, representing not less than twenty
percent and not more than seventy percent of FCMCs common equity, based on the amounts
received by the Bank from the cash collections from FCMCs servicing of the Portfolio
as discussed in more detail below. Under the terms and conditions of the Restructuring
Agreements, FCMC may pay dividends or other distributions in respect of its capital
stock if FCMC delivers to the Bank a payment to be applied to outstanding obligations
under the Legacy Credit Agreement equal to seventy percent of any such distribution or
dividend that FCMC elects to make or declare, which percentage share may be reduced to
twenty percent based upon the Banks receipt of the agreed amounts of net remittances
from the Portfolio summarized below.
  F-31




---



##### Table of Contents



(1)
    
    release of thirty percent of the equity in FCMC, ten percent of which has been
transferred to the Companys principal stockholder, Thomas J. Axon, from the Companys
pledges to the Bank in respect of its Legacy Credit Agreement, with the possibility of
release of up to an additional fifty percent (of which a maximum of ten percent would
go to Thomas J. Axon), based upon the Banks receipt of the agreed amounts of net
remittances from the Portfolio, summarized below (the Net Remittances), from March
31, 2009, the effective date of the Legacy Credit Agreement (the Legacy Effective
Date), through the term of the Legacy Credit Agreement; the Bank shall reduce its
interest in the equity in FCMC, as collateral, in accordance with the following
collection levels;
 Minimum Amountof Net RemittancesLevel
    
    (Minimum Level Amount)
    
    
    Time Period
    
    
    Release of Equity InterestsLevel 1
    
    $225 million
    
    1 year from the Legacy Effective Date
    
    10% (70% reduces to 60%)Level 2
    
    $475 million
    
    3 years from the Legacy Effective Date
    
    10% (60% reduces to 50%)Level 3
    
    $575 million
    
    No time period specified
    
    10% (50% reduces to 40%)Level 4
    
    $650 million
    
    No time period specified
    
    10% (40% reduces to 30%)Level 5
    
    $750 million
    
    No time period specified
    
    10% (30% reduces to 20%)
 (2)
    
    entry into a servicing agreement enabling the Company to receive fee
income in respect of its continued servicing of the transferred Portfolio; and,
 (3)
    
    entry into amended credit facilities in the aggregate principal amount of $13.5
million, including a $5 million facility for working capital and to support various
servicer licenses, a $2 million revolving facility and a $6.5 million letter of credit
facility to support various servicer licenses.
 
 *
    
    Provided, however, (i) if Net Remittances do not reach the minimum Level 1 amount prior to
the first anniversary of the Legacy Effective Date, but reach the minimum Level 2 amount prior
to the third anniversary of the Legacy Effective Date, the Bank shall retain, as collateral,
55% of the FCMC equity instead of 50%, as currently scheduled, and any subsequent reductions
in the amount of FCMC equity pledged to the Bank shall be 10%; and provided further that (ii)
if Net Remittances do not reach the minimum Level 1 amount prior to the first anniversary of
the Legacy Effective Date and do not reach the minimum Level 2 amount prior to the third
anniversary of the Legacy Effective Date, then the schedule for release of the equity
interests in FCMC currently pledged to the Bank shall be as follows: (x) upon attaining the
minimum Level 3 amount, the pledged equity interests in FCMC shall reduce 25% (from 70% to
45%); (y) upon attaining the minimum Level 4 amount, the pledged equity interests in FCMC
shall reduce an additional 10% (from 45% to 35%), and (z) upon attaining the minimum Level 5
amount, the pledged equity interests in FCMC shall reduce an additional 10% (from 35% to 25%).  (1)
    
    the possible transfer of ownership of a portion of FCMC, including a minimum of
twenty percent and a maximum of seventy percent, to the Bank at maturity of the
Companys Legacy Credit Agreement with the Bank, unless further extended if the Company
is not otherwise able to satisfy or refinance the Legacy Credit Agreement prior to
maturity;
 (2)
    
    the transfer of ten percent of ownership of FCMC to Franklin Holdings principal
stockholder, Thomas J. Axon, as the cost of obtaining certain guarantees and pledges
required by the Bank as a condition of the restructuring, subject to increase to an
additional ten percent should the pledge of common shares of FCMC by Franklin Holding
to the Bank be reduced upon the attainment by FCMC of certain net collection targets
set by the Bank with respect to the Portfolio;
  F-32




---



##### Table of Contents



(3)
    
    entry into a service agreement with respect to FCMCs continued servicing of the
Portfolio that allows the Bank to terminate such servicing and, concomitantly, FCMCs
fee income from servicing the Portfolio; and,
 (4)
    
    the Company may incur significant income tax liabilities as a result in part of
a tax basis transfer, at termination of the Legacy Credit Agreement, liquidation of the
Company or any of its direct or indirect subsidiary companies, or certain other Company
events such as a de facto liquidation. The amount of any tax liability that the
Company may incur is not certain since any such calculations need to be performed on a
company by company basis and are influenced by a number of factors including, but not
limited to, the ability to use prior year losses and future results of operations.
 Restructuring Agreements.
 1.
    
    Transferred substantially the entire Portfolio in exchange for the REIT Securities.
  (a)
    
    an undivided 100% interest of the Banks portion of consumer mortgage loans
(the Bank Consumer Loan Certificate);
 (b)
    
    an undivided 100% interest in the Banks portion of consumer REO assets (the
Bank Consumer REO Certificate, and together with the Bank Consumer Loan Certificate,
the Bank Trust Certificates);
 (c)
    
    an undivided 100% interest in the portion of consumer mortgage loan assets
allocated to the M&I Marshall & Ilsley Bank (M&I) and BOS (USA) Inc. (BOS) (M&I and
BOS collectively, the Participants) represented by two certificates (the
Participants Consumer Loan Certificates); and,
 (d)
    
    an undivided 100% interest in Participants portion of the consumer REO assets
represented by two certificates (the Participants Consumer REO Certificates, and
together with the Participants Consumer Loan Certificate, the Participants Trust
Certificates).
   F-33




---



##### Table of Contents



2.
    
    Amended and restated substantially all of its outstanding debt.
   F-34




---



##### Table of Contents



Terms of the Restructured Indebtedness Under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amount
    
    
    Applicable Interest
    
    
    Required Monthlyat March 31, 2009 
    
    
    at December 31, 2009 
    
    
    Margin Over LIBOR
    
    
    PrincipalFranklin Asset/Tribeca
    
    
    Franklin Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    771,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    $
    417,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    $
    140,000,000
    
    
    
    N/A
    (1)
    
    NoneUnrestructured Debt
    
    $
    41,000,000
    
    
    $
    40,000,000
    
    
    
    
    (2)

    
    None
 
 (1)
    
    The applicable interest rate is fixed at 15% per annum. Interest will be paid in kind
during the term of the Restructuring.(2)
    
    Interest margin over FHLB 30-day LIBOR advance rate plus 2.60%-2.75%.   F-35




---



##### Table of Contents



F-36




---



##### Table of Contents



3.
    
    Entered into an amended and restated credit agreement to fund FCMCs licensing obligations
and working capital.
      F-37




---



##### Table of Contents



4.
    
    Entered into a servicing agreement with the New Trust.
      F-38




---



##### Table of Contents



Forbearance Agreements with Lead Lending Bank
    
    
    $44.5 million of the Companys indebtedness under the Master Credit and Security
Agreement, dated as of October 13, 2004, as amended, by and among Franklin Credit,
certain subsidiaries of Franklin Credit and the bank; and,
 
    
    $44.8 million of Tribecas indebtedness to BOS (USA) Inc., an affiliate of Bank of
Scotland, under the Master Credit and Security Agreement, dated March 24, 2006, by and
among Tribeca, certain subsidiaries and BOS.
  Debt Restructuring.
 
    
    the Company acknowledged, and the bank waived, certain existing defaults under the
Companys existing credit facilities with the bank;
 
    
    Franklin Credits indebtedness to the bank was reduced by $300 million and Franklin
Credit paid a restructuring fee of $12 million to the bank;
 
    
    the remaining approximately $1.54 billion of outstanding indebtedness to the bank,
including approximately $1.05 billion of outstanding indebtedness of Franklin Credit
and approximately $491.1 million of outstanding indebtedness of Tribeca, was
restructured into six term loans with modified terms and a maturity date of May 15,
2009; and,
 
    
    the Company paid all of the accrued interest on its debt outstanding to the bank
through December 27, 2007 and guaranteed payment and performance of the restructured
indebtedness.
  F-39




---



##### Table of Contents



Terms of the Restructured Indebtedness.
 ApplicableOutstanding
    
    
    Interest
    
    
    Required Monthly
    
    
    Required MonthlyOutstanding
    
    
    Principal
    
    
    Margin Over
    
    
    Principal
    
    
    PrincipalPrincipal Amount 
    
    
    Amount 
    
    
    LIBOR
    
    
    Amortization 
    
    
    Amortization Franklin Credit
    
    
    Tribeca
    
    
    (basis points)
    
    
    Franklin Credit
    
    
    TribecaTranche A
    
    $
    600,000,000
    
    
    $
    400,000,000
    
    
    
    225
    
    
    $
    5,400,000
    
    
    $
    3,600,000Tranche B
    
    $
    323,255,000
    
    
    $
    91,142,000
    
    
    
    275
    
    
    $
    750,000
    
    
    $
    250,000Tranche C
    
    $
    125,000,000
    
    
    
    N/A
    
    
    
    N/A
    (1)
    
    
    N/A
    (2)
    
    
    N/ATranche D
    
    $
    1,033,000
    (3)
    
    
    N/A
    
    
    
    250
    (4)
    
    
    N/A
    
    
    
    N/AUnrestructured Debt
    
    $
    44,537,000
    
    
    $
    44,835,000
    
    
    
    235-250
    
    
    $
    148,000
    
    
    $
    498,000
 
 (1)
    
    The applicable interest rate is fixed at 10% per annum. Interest will be paid in kind
during the term of the forbearance.(2)
    
    Tranche C requires no principal amortization. All principal is due at maturity.(3)
    
    Tranche D serves as a revolving credit line with a maximum availability of $5 million,
and an additional $5 million which may be used for issuance of letters of credit.(4)
    
    Does not include a letter of credit facing fee of 0.125% per annum on the average daily
undrawn amount of each issued and outstanding letter of credit.   Total OutstandingPrincipal Amount
    
    
    Weighted Average(Franklin Credit and Tribeca)*
    
    
    Applicable Interest RateImmediately after restructuring
    
    $1.63 billion
    
    
    7.49
    %Immediately prior to restructuring
    
    $1.93 billion
    
    
    7.71
    %
 
 *
    
    Includes the Unrestructured Debt.   F-40




---



##### Table of Contents



Cash Flow.
 
    
    to pay interest in respect of Tranche A advances, Tranche B advances and, in the
case of Franklin Credit, Tranche D advances, in that order;
    
    to pay fees related to the Companys letters of credit from the bank;
    
    to pay the minimum required principal payments in respect of Tranche A advances and
Tranche B advances, in that order;
    
    to prepay outstanding Tranche A advances;
    
    to prepay outstanding Tranche B advances;
    
    to prepay Unrestructured Debt (excluding that owed to BOS);
    
    in the case of Franklin Credit, to repay Tranche D advances, any letter of credit
exposure, and any obligations in respect of any interest rate hedge agreements with the
bank;
    
    in the case of Franklin Credit, 90% of the available cash flow to repay interest and
then principal of the Tranche C advances if Franklin Credit is acting as servicer of
the underlying collateral, or 100% otherwise; and,
    
    in the case of Franklin Credit and Tribeca, to pay any advances then outstanding in
respect of the others indebtedness to the bank, other than for Unrestructured Debt.
 Covenants; Events of Default.
 
    
    the Companys reimbursable expenses in the ordinary course of business during each
of the first two months after the date of the agreement will not exceed $2.5 million,
excluding reimbursement of certain bank expenses after the date of the Restructuring,
and thereafter, an amount provided for in an approved budget;
    
    the Company will not originate or acquire mortgage loans or other assets, perform
due diligence or servicing, broker loans, or participate in off-balance sheet joint
ventures and special purpose vehicles, without the prior consent of the bank;
    
    the Company will use its best efforts to obtain interest rate hedges acceptable to
the bank in respect of the $1 billion of Tranche A indebtedness;
    
    the Company will not make certain restricted payments to its stockholders or certain
other related parties;
    
    the Company will not engage in certain transactions with affiliates;
    
    the Company will not incur additional indebtedness other than trade payables and
subordinated indebtedness;
  F-41




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##### Table of Contents




    
    the Company together will maintain a minimum consolidated net worth of at least $5
million, plus a certain percentage, to be mutually agreed upon, of any equity
investment in the Company after the date of the Restructuring;
 
    
    the Company will together maintain a minimum liquidity of $5 million;
 
    
    the Company will maintain prescribed interest coverage ratios based on EBITDA (as
defined) to Interest Expense (as defined);
 
    
    the Company will not enter into mergers, consolidations or sales of assets (subject
to certain exceptions); and,
 
    
    the Company will not, without the banks consent, enter into any material change in
its capital structure that the bank or a nationally recognized independent public
accounting firm determine could cause a consolidation of its assets with other persons
under relevant accounting regulations.
  Servicing.
 Security.
 March 2008 Modifications to Forbearance Agreements and Refinancing of BOS Loan
    F-42




---



##### Table of Contents




    
    to provide that Tranche C interest shall not accrue until the first business day
after all outstanding amounts under the Tranche A facility have been paid in full;
 
    
    to increase the Tranche C interest rate to 20% from and after such time it begins to
accrue;
 
    
    to extend an additional period of forbearance through July 31, 2008, from May 15,
2008, in respect of the remaining Unrestructured Loans; and,
 
    
    to increase the maximum availability under the Tranche D line of credit to
$10,000,000 for working capital and general corporate purposes to enable the Company to
purchase real property in which it may have a lien, and for purposes of meeting
licensing requirements.
    August 2008 Modification to Forbearance Agreements
   F-43




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##### Table of Contents



Unrestructured Debt
  December 2008 Modification to Forbearance Agreements
  
    
    Franklin Asset became a borrower under the Companys lending agreements with
Huntington;
 
    
    the Trusts became guarantors for the Borrowers indebtedness to Huntington;
 
    
    FCMC, Franklin Asset and the Trusts each pledged its assets, including any equity
interests in any of the Borrowers, as security for the Borrowers indebtedness to
Huntington;
 
    
    Franklin Servicing LLC agreed to service, if necessary, the Companys mortgage loans
in selected states;
 
    
    the Company agreed to maintain in effect one or more interest rate hedge agreements
in an aggregate notional principal amount of not less than $1 billion, or such lesser
amount as Huntington in its sole discretion may approve;
 
    
    the Companys Tranche D facility was amended to provide for (i) a revolving credit
facility and letter of credit facility in the aggregate outstanding amount of $10
million, with a sublimit of $5 million, and, in addition, (ii) a separate letter of
credit facility pursuant to which Huntington may issue letters of credit in its
discretion, with a sublimit of $5.5 million;
 
    
    Huntington agreed to waive the Companys breach of covenant to comply with all laws,
rules and regulations to the extent such breach results from the Companys failure to
satisfy a minimum net worth requirement; and,
 
    
    the covenant requiring FCMC and each of the Borrowers to maintain liquidity of at
least $5 million was deleted.
  
    
    Franklin Holding became a guarantor for the Borrowers indebtedness to Huntington;
and,
 
    
    Franklin Holding pledged its assets, including any equity interests in any of the
Borrowers, as security for the Borrowers indebtedness to Huntington.
  F-44




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##### Table of Contents



The Forbearance Agreements and the March 2009 Restructuring and Modifications to the Franklin
Forbearance Agreement in April, August and November 2009, and on March 26, 2010
     10.
    
    FINANCING AGREEMENTS
   F-45




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##### Table of Contents



11.
    
    NONCONTROLLING INTEREST
   2009Balance as of January 1, 2009
    
    $
    Transfer of 10% ownership
    
    
    1,710,490Net income attributed to minority interest
    
    
    267,519Non-dividend distribution
    
    
    (224,500
    )Noncontrolling interest distribution
    
    
    (96,234
    )Noncontrolling interest in Subsidiary
    
    $
    1,675,275
   F-46




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##### Table of Contents



12.
    
    INCOME TAXES
  2009
    
    
    2008Current (benefit)/provision:Federal
    
    $
    (3,719,010
    )
    
    $
    (1,088,215
    )State and local
    
    
    638,762
    
    
    
    306,464(3,080,248
    )
    
    
    (781,751
    )Deferred provision/(benefit):Federal
    
    
    82,619,163
    
    
    
    (162,291,345
    )State and local
    
    
    7,087,080
    
    
    
    (13,921,367
    )89,706,243
    
    
    
    (176,212,712
    )(Decrease)/increase
in valuation allowance
    
    
    (89,465,511
    )
    
    
    175,669,205(Benefit)
    
    $
    (2,839,516
    )
    
    $
    (1,325,258
    )
  2009
    
    
    2008Tax determined by applying
U.S. statutory rate to income
    
    $
    (122,623,091
    )
    
    $
    (162,653,941
    )Increase in taxes resulting from:State and local taxes,
net of Federal benefit
    
    
    (7,156,807
    )
    
    
    (13,615,221
    )(Decrease)/increase
in valuation allowance
    
    
    (89,465,511
    )
    
    
    175,669,205Basis adjustment
    
    
    215,513,346
    
    
    
    Change in federal tax estimate
    
    
    856,857
    
    
    
    (1,124,961
    )Non-deductible expenses
    
    
    35,690
    
    
    
    399,660$
    (2,839,516
    )
    
    $
    (1,325,258
    )
  F-47




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##### Table of Contents



2009
    
    
    2008Unrecognized tax liabilities,
January 1
    
    $
    702,442
    
    
    $
    490,684Increase as a result of tax position
taken in prior year
    
    
    240,732
    
    
    
    211,758Unrecognized tax liabilities,
December 31
    
    $
    943,174
    
    
    $
    702,442
   2009
    
    
    2008Deferred tax liabilities:Deferred loan costs
    
    $
    
    
    
    $
    647,679Restricted stock
    
    
    35,550
    
    
    
    102,015Loans to subsidiary companies
    
    
    6,629,225
    
    
    
    6,629,226Prepaid expenses, other assets
    
    
    
    
    
    
    363,633Other
    
    
    132,590
    
    
    
    154,190Deferred tax liabilities
    
    $
    6,797,365
    
    
    $
    7,896,743Deferred tax assets:Loan basis
    
    $
    8,348,718
    
    
    $
    149,087,786Derivative liabilities
    
    
    4,431,875
    
    
    
    9,991,237Tax hedge
    
    
    1,048,315
    
    
    
    Other real estate owned
    
    
    
    
    
    
    8,384,705Investment in REIT stock
    
    
    53,144,236
    
    
    
    Acquisition costs
    
    
    264,416
    
    
    
    360,476State net operating loss carryforwards
    
    
    8,331,997
    
    
    
    7,807,847Deferred costs
    
    
    1,351,325
    
    
    
    Federal net operating loss carryforwards
    
    
    24,965,450
    
    
    
    21,373,745Other
    
    
    771,464
    
    
    
    648,766Deferred tax assets
    
    $
    102,657,796
    
    
    $
    197,654,562Valuation allowance
    
    
    (95,860,431
    )
    
    
    (189,757,819
    )Net deferred tax liability
    
    $
    
    
    
    $
    
  F-48




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##### Table of Contents



13.
    
    STOCK-BASED COMPENSATION
    Incentive Stock Options
    
    
    Non-Qualified Stock Options2009
    
    
    2008
    
    
    2009
    
    
    2008Risk-free interest rate
    
    
    
    
    
    
    2.94
    %
    
    
    3.57
    %
    
    
    3.57
    %Weighted average volatility
    
    
    
    
    
    
    103.06
    
    
    
    110.53
    
    
    
    102.23Expected lives (years)
    
    
    
    
    
    
    10.0
    
    
    
    10.0
    
    
    
    10.0
  F-49




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##### Table of Contents



2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding options, beginning
    
    
    582,000
    
    
    $
    2.78
    
    
    
    370,000
    
    
    $
    3.44Options granted
    
    
    12,000
    
    
    
    0.30
    
    
    
    262,000
    
    
    
    1.71Options cancelled
    
    
    (293,000
    )
    
    
    1.63
    
    
    
    (50,000
    )
    
    
    2.05Outstanding options, end
    
    
    301,000
    
    
    
    3.81
    
    
    
    582,000
    
    
    
    2.78Options unvested
    
    
    (60,000
    )
    
    
    1.75
    
    
    
    (250,000
    )
    
    
    1.75Options exercisable, end
    
    
    241,000
    
    
    $
    4.32
    
    
    
    332,000
    
    
    $
    3.56
   Number
    
    
    NumberRange of exercise price of options:
    
    Outstanding
    
    
    Exercisable$0.30
    
    
    12,000
    
    
    
    12,000$0.75
    
    
    84,000
    
    
    
    84,000$0.85
    
    
    5,000
    
    
    
    5,000$0.89
    
    
    12,000
    
    
    
    12,000$1.04
    
    
    6,000
    
    
    
    6,000$1.75
    
    
    80,000
    
    
    
    20,000$2.25
    
    
    11,000
    
    
    
    11,000$3.55
    
    
    12,000
    
    
    
    12,000$4.98
    
    
    15,000
    
    
    
    15,000$7.73
    
    
    15,000
    
    
    
    15,000$12.85
    
    
    15,000
    
    
    
    15,000$13.75
    
    
    34,000
    
    
    
    34,000TOTAL OPTIONS
    
    
    301,000
    
    
    
    241,000Weighted average exercise price
    
    $
    3.81
    
    
    $
    4.32
   F-50




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##### Table of Contents



2006 Stock Incentive Plan
   Restricted Stock
  2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageRestricted Stock
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueOutstanding unvested grants, beginning of year
    
    
    31,250
    
    
    $
    7.90
    
    
    
    65,000
    
    
    $
    8.24Vested
    
    
    (18,750
    )
    
    $
    7.90
    
    
    
    (33,750
    )
    
    $
    8.54Canceled
    
    
    (12,500
    )
    
    $
    7.90
    
    
    
    
    
    
    $
    Outstanding unvested grants, end of year
    
    
    
    
    
    $
    
    
    
    
    31,250
    
    
    $
    7.90
    F-51




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##### Table of Contents



14.
    
    SEGMENTS
  PORTFOLIO ASSET ACQUISITIONAND RESOLUTION
    
    2008REVENUES:Interest income
    
    $
    72,586,631Purchase discount earned
    
    
    2,555,543(Loss) on sale of other real estate owned
    
    
    (25,466
    )Other
    
    
    8,212,846Total revenues
    
    
    83,329,554OPERATING EXPENSES:Interest expense
    
    
    52,064,878Collection, general and administrative
    
    
    36,620,553Provision for loan losses
    
    
    393,367,806Amortization of deferred financing costs
    
    
    606,006Depreciation
    
    
    721,834Total operating expenses
    
    
    483,381,077(LOSS) BEFORE PROVISION
FOR INCOME TAXES
    
    $
    (400,051,523
    )
  F-52




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##### Table of Contents



MORTGAGE BANKING
    
    2008REVENUES:Interest income
    
    $
    20,513,971Purchase discount earned
    
    
    34,631Gain on sale of other real estate owned
    
    
    2,239,464Other
    
    
    3,811,646Total revenues
    
    
    26,599,712OPERATING EXPENSES:Interest expense
    
    
    26,398,283Collection, general and administrative
    
    
    11,867,387Provision for loan losses
    
    
    64,754,183Amortization of deferred financing costs
    
    
    377,651Depreciation
    
    
    816,631Total operating expenses
    
    
    104,214,135(LOSS) BEFORE PROVISION
FOR INCOME TAXES
    
    $
    (77,614,423
    )OTHER SELECTED SEGMENT RESULTSCONSOLIDATED ASSETS:Portfolio asset acquisition and resolution
    
    $
    598,239,478Mortgage banking
    
    
    424,143,964Consolidated assets
    
    $
    1,022,383,442TOTAL ADDITIONS TO BUILDING, FURNITURE AND EQUIPMENT:Portfolio asset acquisition and resolution
    
    $
    2,042,436Mortgage banking
    
    
    Consolidated additions to building, furniture and equipment
    
    $
    2,042,436CONSOLIDATED REVENUE:Portfolio asset acquisition and resolution
    
    $
    83,329,554Mortgage banking
    
    
    26,599,712Consolidated revenue
    
    $
    109,929,266CONSOLIDATED NET (LOSS)/INCOME:Portfolio asset acquisition and resolution
    
    $
    (398,726,265
    )Mortgage banking
    
    
    (77,614,423
    )Consolidated net (loss)
    
    $
    (476,340,688
    )
  F-53




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##### Table of Contents



15.
    
    CERTAIN CONCENTRATIONS
 Third Party Servicing Agreements
  Legacy Loan Portfolios
 Location
    
    December 31, 2008California
    
    
    14.72
    %New York
    
    
    11.22
    %New Jersey
    
    
    9.44
    %Florida
    
    
    8.85
    %Pennsylvania
    
    
    4.53
    %Texas
    
    
    4.53
    %Maryland
    
    
    3.31
    %Ohio
    
    
    3.30
    %Illinois
    
    
    3.19
    %Michigan
    
    
    2.84
    %All Others
    
    
    34.07
    %100.00
    %
  Financing
  F-54




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##### Table of Contents



16.
    
    COMMITMENTS AND CONTINGENCIES
 Operating Leases
  Year Ended
    
    Amount2010
    
    $
    1,633,2772011
    
    
    1,618,0852012
    
    
    1,597,1072013
    
    
    1,597,107Thereafter
    
    
    $
    6,445,576
   Year Ended
    
    Amount2010
    
    $
    73,3142011
    
    
    31,4762012
    
    
    31,4762013
    
    
    31,4762014
    
    
    31,476Thereafter
    
    
    $
    199,218
 Capital Leases
  F-55




---



##### Table of Contents



Year Ended
    
    Amount2010
    
    $
    96,838
 Legal Actions
 17.
    
    RELATED PARTY TRANSACTIONS
 Restructuring
 Bosco Servicing Agreement
     F-56




---



##### Table of Contents



F-57




---



##### Table of Contents



Other Significant Related Party Transactions with the Companys Chairman
     F-58




---



##### Table of Contents



18.
    
    QUARTERLY FINANCIAL INFORMATION (Unaudited)
 Consolidated Statements of Operations
 2009 QuartersFourth
    
    
    Third
    
    
    Second
    
    
    FirstRevenues:Interest income
    
    $
    11,936,927
    
    
    $
    13,030,707
    
    
    $
    16,676,815
    
    
    $
    16,454,325Dividend income
    
    
    10,712,559
    
    
    
    10,678,495
    
    
    
    10,629,299
    
    
    
    Purchase discount earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392,127Gain on recovery from contractual loan purchase rights
    
    
    
    
    
    
    
    
    
    
    30,550,000
    
    
    
    (Loss) on mortgage loans
and real estate held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282,593,653
    )(Loss) on valuation of investments
in trust certificates
and notes receivable held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,651,940
    )Fair valuation adjustments
    
    
    (8,640,854
    )
    
    
    (4,186,598
    )
    
    
    (14,393,966
    )
    
    
    Gain on sale of other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    374,344Servicing fees and other income
    
    
    589,222
    
    
    
    1,460,381
    
    
    
    1,717,609
    
    
    
    2,509,557Total revenues
    
    
    14,597,854
    
    
    
    20,982,985
    
    
    
    45,179,757
    
    
    
    (325,515,240
    )Operating Expenses:Interest expense
    
    
    18,277,248
    
    
    
    21,202,037
    
    
    
    17,117,236
    
    
    
    17,683,156Collection, general and administrative
    
    
    5,948,409
    
    
    
    8,721,929
    
    
    
    6,905,713
    
    
    
    18,692,995Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,479Amortization of deferred financing costs
    
    
    37,741
    
    
    
    43,810
    
    
    
    288,577
    
    
    
    166,768Depreciation
    
    
    178,361
    
    
    
    153,509
    
    
    
    157,892
    
    
    
    156,648Total expenses
    
    
    24,441,759
    
    
    
    30,121,285
    
    
    
    24,469,418
    
    
    
    36,869,046(Loss)/income before income taxes
    
    
    (9,843,905
    )
    
    
    (9,138,300
    )
    
    
    20,710,339
    
    
    
    (362,384,286
    )(Tax benefit)/provision for income taxes
    
    
    (3,511,156
    )
    
    
    238,475
    
    
    
    433,165
    
    
    
    Net (loss)/income
    
    
    (6,332,749
    )
    
    
    (9,376,775
    )
    
    
    20,277,174
    
    
    
    (362,384,286
    )Net (income)/loss attributed
to noncontrolling interest
    
    
    (131,231
    )
    
    
    192,670
    
    
    
    206,080
    
    
    
    Net (loss)/income attributed
to common stockholders
    
    $
    (6,201,518
    )
    
    $
    (9,569,445
    )
    
    $
    20,071,094
    
    
    $
    (362,384,286
    )Net (loss)/income per common share:Basic and diluted
    
    $
    (0.77
    )
    
    $
    (1.20
    )
    
    $
    2.51
    
    
    $
    (45.33
    )
  F-59




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##### Table of Contents



2008 QuartersFourth
    
    
    Third
    
    
    Second
    
    
    FirstRevenues:Interest income
    
    $
    15,052,778
    
    
    $
    19,122,096
    
    
    $
    26,605,598
    
    
    $
    32,320,130Purchase discount earned
    
    
    456,032
    
    
    
    547,392
    
    
    
    805,409
    
    
    
    781,341Gain on sale of other real estate owned
    
    
    1,087,638
    
    
    
    743,653
    
    
    
    291,891
    
    
    
    90,816Servicing fees and other income
    
    
    3,120,525
    
    
    
    3,706,094
    
    
    
    3,175,150
    
    
    
    2,022,723Total revenues
    
    
    19,716,973
    
    
    
    24,119,235
    
    
    
    30,878,048
    
    
    
    35,215,010Operating Expenses:Interest expense
    
    
    18,411,150
    
    
    
    18,267,375
    
    
    
    18,902,627
    
    
    
    22,882,009Collection, general and administrative
    
    
    13,856,693
    
    
    
    12,702,951
    
    
    
    12,305,127
    
    
    
    9,623,169Provision for loan losses
    
    
    158,413,814
    
    
    
    10,560,709
    
    
    
    280,491,641
    
    
    
    8,655,825Amortization of deferred financing costs
    
    
    111,775
    
    
    
    297,917
    
    
    
    318,126
    
    
    
    255,839Depreciation
    
    
    676,431
    
    
    
    247,732
    
    
    
    297,676
    
    
    
    316,626Total expenses
    
    
    191,469,863
    
    
    
    42,076,684
    
    
    
    312,315,197
    
    
    
    41,733,468(Loss) before income taxes
    
    
    (171,752,890
    )
    
    
    (17,957,449
    )
    
    
    (281,437,149
    )
    
    
    (6,518,458
    )Income tax (benefit)
    
    
    (1,325,258
    )
    
    
    
    
    
    
    
    
    
    
    Net (loss)
    
    $
    (170,427,632
    )
    
    $
    (17,957,449
    )
    
    $
    (281,437,149
    )
    
    $
    (6,518,458
    )Net (loss) per common share:Basic and diluted
    
    $
    (21.32
    )
    
    $
    (2.25
    )
    
    $
    (35.26
    )
    
    $
    (0.82
    )
 19.
    
    SUBSEQUENT EVENTS
 Extension to Forbearance Agreement
    F-60




---



##### Table of Contents



Amendment and Extension of Licensing Credit Agreement
      F-61




---



##### Table of Contents



Bosco Ancillary Services Agreement
  Collection Services Agreement
   F-62