##### Table of Contents





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 1934For the fiscal year ended
    December 31, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-17771
 FRANKLIN CREDIT MANAGEMENT
    CORPORATION
 (Exact name of Registrant as
    specified in its charter)
  Delaware

75-2243266(State or other jurisdiction
    of
    incorporation or organization)

(IRS EmployerIdentification No.)101 Hudson Street
    Jersey City, New Jersey(Address of Principal
    Executive Offices)

07302(Zip code)   (201) 604-1800
       o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o  Large
    accelerated filer


o  Accelerated
    filero  Non-accelerated
    filer


þ  Smaller
    Reporting Company   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





FRANKLIN
    CREDIT MANAGEMENT CORPORATION
  FORM 10-K
 December 31,
    2007
  INDEX
  
  PagePART IItem 1.


Business


3Item 1A.


Risk Factors


30Item 1B.


Unresolved Staff Comments


43Item 2.


Properties


43Item 3.


Legal Proceedings


44Item 4.


Submission of Matters to a Vote of Security
    Holders


45PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


45Item 6.


Selected Financial Data


47Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


49Item 7A.


Quantitative and Qualitative Disclosure About
    Market Risk


70Item 8.


Financial Statements and Supplementary Data


72Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


72Item 9A.


Controls and Procedures


72Item 9B.


Other Information


73PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


74Item 11.


Executive Compensation


74Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


74Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


74Item 14.


Principal Accountant Fees and Services


74PART IVItem 15.


Exhibits and Financial Statement Schedules


75EX-10.52: ISDA MASTER (SWAP) AGREEMENTEX-21.1: SUBSIDIARIES OF THE REGISTRANTEX-23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTFICATION




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PART I  ITEM 1.
    BUSINESS  Overview
             3




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##### Table of Contents



Form 10-K
    Form 10-K
  Loan
    Acquisitions
    
    performing loans loans to borrowers who are
    contractually current, but may have been delinquent in the past
    and which may have deficiencies relating to credit history,
    loan-to-value ratios, income ratios or documentation;
    reperforming loans loans to borrowers who are
    not contractually current, but have recently made regular
    payments and where there is a good possibility the loans will be
    repaid in full; and
    nonperforming loans loans to borrowers who
    are delinquent, not expected to cure, and for which a primary
    avenue of recovery is through the sale of the property securing
    the loan.      Loan
    Originations
   4




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##### Table of Contents



and/or
    Loan
    Servicing
    Financing
       5




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##### Table of Contents



Corporate
    History
      Loan
    Acquisitions  Franklin
    Newly originated loans.
  
    Investor Fallout.  Mortgages may not meet the
    requirements of the secondary market for a number of different
    reasons, including noncompliance with purchaser program
    requirements, documentation deficiencies and collateral
    valuation variances. 6




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
    Loan Repurchases.  Once a mortgage is sold, it
    may be subject to a required repurchase by the seller for a
    number of different reasons, including a subsequent default by
    the borrower that occurs within a specified period of time after
    the sale.
    Facilitation.  Occasionally, financial
    institutions will originate loans (frequently second liens) even
    though a liquid secondary market does not exist for those loans
    in order to facilitate the origination of mortgages that do have
    a liquid secondary market.  Seasoned loans.
  
    Mergers and Acquisitions.  The acquirer in a
    merger or acquisition may find that it has acquired mortgages
    that do not fit within its credit parameters.
    Credit or Performance Issues.  A portfolio
    holder of mortgages may have accumulated mortgages that have
    credit or performance characteristics that do not meet its
    current needs.
    Securitization Terminations.  When mortgage
    loans are securitized, the securitization trust normally sells
    bonds with maturities that are shorter than the life of some of
    the mortgage loans that act as collateral. Optional call
    provisions may also provide certain interested parties with the
    ability to collapse the trust by selling or refinancing the
    remaining mortgage loans in the trust prior to maturity.
    Insolvency.  When a financial institution
    becomes insolvent, a trustee may decide to liquidate a mortgage
    portfolio in order to satisfy the creditors of the insolvent
    institution.        Bulk
    and Flow Acquisitions
   7




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Due
    Diligence
  on-site
  Pricing
      Competition
    Borrowers
    Sellers
   8




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Marketing
    Loan
    Originations  Tribeca
  and/or
    Wholesale
    and Retail Originations
       9




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##### Table of Contents



Acquisition of Wholesale Mortgage
    Operation.
        Borrowers
    Secondary
    Marketing
     10




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##### Table of Contents



Licensing
    Products
    Liberty Loans. 30-year
   11




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##### Table of Contents



Platinum and Gold Loans.
  Competition
   12




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##### Table of Contents



Mortgage
    Banking Segment Summary Information
    Year Ended December 31,2007


2006


2005Revenues:Interest income

$
40,377,472


$
41,219,970


$
24,331,218Purchase discount earned


131,729



237,144



459,742Gain on sale of notes receivable


(1,299
)






(Loss)/gain on sale of originated loans


(305,446
)


1,871,633



1,276,566Gain on sale of other real estate owned


390,781



173,989



34,181Other income


2,678,334



3,372,000



1,263,883Total revenues


43,271,571



46,874,736



27,365,590Operating expenses:Interest expense


38,419,580



33,960,553



16,727,093Collective, general and administrative


11,621,591



5,718,053



2,875,994Provision for loan losses


26,261,314



204,508



1,004,388Amortization of deferred financing costs


917,403



1,970,040



1,123,187Depreciation


504,220



291,065



221,062Total expenses


77,724,108



42,144,219



21,951,724(Loss)/income before provision for income taxes


(34,452,537
)


4,730,517



5,413,866Income tax (benefit)/provision


(13,579,414
)


2,034,122



2,434,508Net income

$
(20,873,123
)

$
2,696,395


$
2,979,358Fixed-rate originations

$
31,718,090


$
25,728,501


$
36,636,445Adjustable-rate originations

$
259,898,537


$
359,015,077


$
390,624,027Total originations

$
291,616,627


$
384,743,578


$
427,260,472Loans sold

$
37,477,843


$
119,767,721


$
60,715,866   Servicing
    Loan Boarding and Administration.
 13




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Customer Service. and/or
  Collections.
  Legal.
  
    Short-term repayment plans, or forbearance plans, when a
    delinquency can be cured within six months;
    Loan modifications, when a delinquency cannot be cured within
    three months but the borrower has the financial ability to abide
    by the terms of the loan modification;
    Short sales, when the borrower does not have the ability to
    repay and the equity in the property is not sufficient to
    satisfy the total amount due under the loan, but we accept the
    sale price of the property in full satisfaction of the debt in
    order to expedite the process for all parties involved;
    Deed-in-lieu,
    when the borrower does not have the ability to repay and the
    equity in the property is not sufficient to satisfy the total
    amount due, but we accept the deed in full satisfaction of the
    debt in order to expedite the process for all parties involved;
    Assumption, when the borrower wishes to relinquish
    responsibility to a third party and the prospective borrower
    demonstrates the ability to repay the loan; 14




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
    Subordination, when we have the second lien on a property and
    the first-lien holder wishes to refinance its loan, to which we
    will agree if the terms of the refinanced loan permit the
    borrower to repay our loan; and
    Deferment agreements, when we forgo collection efforts for a
    period of time, typically as a result of a hardship incurred by
    the borrower, such as a natural disaster or a death or illness
    in the family, as a result of which the borrower is temporarily
    unable to repay.      Real Estate. deed-in-lieu
  Quality Control.
  Training.
  Portfolio
    Characteristics
  Overall
    Portfolio
   15




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##### Table of Contents



Percentage of TotalProperty Types

Principal Balance


Principal BalanceResidential 1-4 family

$
1,600,634,441



83.20
%Condos, co-ops, PUD dwellings


236,819,505



12.31
%Manufactured and mobile homes


18,575,140



0.97
%Multi-family


749,055



0.04
%Secured, property type
    unknown(1)


29,248,074



1.52
%Commercial


3,328,122



0.17
%Unsecured
    loans(2)


33,899,001



1.76
%Other


627,238



0.03
%Total

$
1,923,880,576



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 residential real
    estate collateral has been foreclosed by the first-lien holder.  Geographic Dispersion.
  Percentage of TotalLocation

Principal Balance


Principal BalanceCalifornia

$
264,789,709



13.76
%New York


211,217,255



10.98
%New Jersey


186,256,242



9.68
%Florida


167,528,926



8.71
%Texas


89,833,416



4.67
%Pennsylvania


87,157,016



4.53
%Ohio


65,474,099



3.40
%Illinois


63,004,703



3.27
%Maryland


60,561,445



3.15
%Michigan


57,434,860



2.99
%All Others


670,622,905



34.86
%Total

$
1,923,880,576



100.00
%     Asset
    Quality
  Delinquency.
 16




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December 31, 2007Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Current

0 - 30 days

$
959,844,059



49.89
%

$
1,120,797,311



58.25
%Delinquent

31 - 60 days


125,213,791



6.51
%


95,761,778



4.98
%61 - 90 days


8,929,391



0.46
%


34,790,945



1.81
%90+ days


286,038,884



14.87
%


128,676,091



6.69
%Bankruptcy

0 - 30 days


29,384,478



1.53
%


87,622,292



4.55
%Delinquent

31 - 60 days


6,383,420



0.33
%


7,556,925



0.39
%61 - 90 days


2,556,033



0.13
%


3,995,884



0.21
%90+ days


114,241,573



5.94
%


53,390,403



2.78
%Foreclosure

0 - 30 days


1,991,903



0.10
%


32,997,880



1.71
%Delinquent

31 - 60 days


3,597,615



0.19
%


11,465,656



0.60
%61 - 90 days


374,471



0.02
%


10,356,000



0.54
%90+ days


385,324,958



20.03
%


336,469,411



17.49
%Total

$
1,923,880,576



100.00
%

$
1,923,880,576



100.00
%Total loans

0 - 30 days

$
991,220,440



51.52
%

$
1,241,417,483



64.53
%   December 31, 2006Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Current

0 - 30 days

$
961,563,124



57.91
%

$
1,096,675,851



66.04
%Delinquent

31 - 60 days


89,662,792



5.40
%


57,397,832



3.46
%61 - 90 days


12,558,911



0.75
%


20,572,952



1.24
%90+ days


195,922,320



11.80
%


85,060,512



5.12
%Bankruptcy

0 - 30 days


38,276,181



2.31
%


101,649,384



6.12
%Delinquent

31 - 60 days


8,523,006



0.51
%


6,957,591



0.42
%61 - 90 days


3,231,686



0.19
%


2,920,336



0.18
%90+ days


104,883,243



6.32
%


43,386,805



2.61
%Foreclosure

0 - 30 days


622,379



0.04
%


8,371,118



0.50
%Delinquent

31 - 60 days


214,085



0.01
%


1,789,362



0.11
%61 - 90 days


244,283



0.02
%


2,593,268



0.16
%90+ days


208,091,113



12.53
%


196,418,112



11.83
%Not
    Boarded(1)




36,687,620



2.21
%


36,687,620



2.21
%Total(2)

$
1,660,480,743



100.00
%

$
1,660,480,743



100.00
%Total loans

0 - 30 days

$
1,000,461,684



60.25
%

$
1,206,696,353



72.67
%     (1)
    
    Not boarded represents recently
    acquired loans serviced by the seller on a temporary basis. A
    portion of not boarded loans has been included in the
    appropriate delinquency categories based on information provided
    by the seller-servicer. The remaining portion of not boarded
    loans, for which information has not been entered into our
    servicing system, is shown in the not boarded category. Total
    not boarded loans amounted to $129,906,356 at December 31,
    2006. 17




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##### Table of Contents



(2)
    
    Excludes $17.2 million of
    loans sold to investors, which the Company committed to
    repurchase, that are included on the face of the balance sheet
    at December 31, 2006.  Notes
    Receivable Portfolio
    2007


2006


2005Performing loans

$
1,087,987,060


$
866,296,721


$
536,974,892Allowance for loan losses


129,967,195



7,745,261



14,266,781Nonaccretable discount*


61,590,526



29,536,412



5,423,419Total performing loans, net of allowance for loan losses and
    nonaccretable discount


896,429,339



829,015,048



517,284,692Impaired loans


330,212,508



251,210,748



244,986,933Allowance for loan losses


100,842,743



44,679,114



43,691,572Nonaccretable discount*


40,551,354



19,892,190



8,529,588Total impaired loans, net of allowance for loan losses and
    nonaccretable discount


188,818,411



186,639,444



192,765,773Not yet boarded onto servicing system






129,906,356



188,037,218Allowance for loan losses










9,317,802Nonaccretable discount*






11,102,901



10,028,006Not yet boarded onto servicing system, net of allowance for loan
    losses and nonaccretable discount






118,803,455



168,691,410Total notes receivable, net of allowance for loan losses and
    nonaccretable discount


1,085,247,750



1,134,457,947



878,741,875Accretable discount*


26,507,403



12,842,755



11,360,617Total Notes Receivable, net of allowance for loan losses and
    accretable/nonaccretable discount

$
1,058,740,347


$
1,121,615,192


$
867,381,258     *
    
    Represents purchase discount not
    reflected on the face of the balance sheet in accordance with
    SOP 03-3
    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. 18




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##### Table of Contents



2007


2006


2005Performing Loans:Fixed-rate Performing Loans

$
765,622,654


$
755,334,985


$
393,982,311Adjustable-rate Performing Loans


192,397,211



103,216,474



128,725,800Total Performing Loans

$
958,019,865


$
858,551,459


$
522,708,111Impaired Loans:Fixed-rate Impaired Loans

$
143,666,475


$
169,586,108


$
167,093,004Adjustable-rate Impaired Loans


85,703,290



36,945,527



34,202,357Total Impaired Loans

$
229,369,765


$
206,531,635


$
201,295,361Total Notes

$
1,187,389,630


$
1,065,083,094


$
724,003,472Accretable Discount

$
26,507,403


$
12,842,755


$
11,360,617Nonaccretable Discount

$
102,141,880


$
49,428,602


$
13,953,006Total Notes Receivable, net of allowance for loan losses,
    excluding loans not boarded onto servicing systems

$
1,058,740,347


$
1,002,811,737


$
698,689,849     Lien Position.
  December 31, 2007


December 31, 2006


December 31, 2005Principal


Percentage of Total


Principal


Percentage of Total


Principal


Percentage of TotalLien Position

Balance


Principal Balance


Balance


Principal Balance


Balance


Principal Balance1st
    Liens

$
497,433,756



35.08
%

$
365,713,586



29.32
%

$
432,091,423



44.55
%2nd
    Liens


920,765,812



64.92
%


881,700,239



70.68
%


537,907,621



55.45
%Total

$
1,418,199,568



100.00
%

$
1,247,413,825



100.00
%

$
969,999,044



100.00
%   Loan
    Acquisitions
   19




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##### Table of Contents



2007


2006


2005Number of loans


6,561



12,881



12,311Aggregate unpaid principal balance at acquisition

$
528,670,757


$
621,441,190


$
505,655,681Purchase price

$
440,678,212


$
572,011,360


$
468,324,936Purchase price percentage


83
%


92
%


93
%Percentage of
    1st
    liens


49
%


8
%


36
%Percentage of
    2nd
    liens


51
%


91
%


64
%Percentage of Other






1
%*


     *
    
    Represents $5.0 million of
    OREO that was acquired in the third quarter of 2006.  Notes
    Receivable Dispositions
    2007


2006


2005Sale of Performing LoansAggregate unpaid principal balance

$
22,255,982


$
3,784,126


$
13,573,871Gain on sale

$
31,118


$
94,862


$
1,263,866Sale of Non-Performing LoansAggregate unpaid principal balance

$



$
161,149


$
23,491,405
*Gain (loss) on sale

$



$
69,049


$
47,021Total gain on sale

$
31,118


$
163,911


$
1,310,887     *
    
    Sale of credit card portfolio. The
    carrying value of this portfolio was $1.2 million.  Tribecas
    Loan Originations
    2007


2006


2005Number of loans originated


1,224



1,696



1,871Original principal balance

$
291,616,627


$
384,743,578


$
427,260,472Average loan amount

$
238,249


$
226,854


$
228,359Originated as fixed

$
31,718,090


$
25,728,501


$
36,636,445Originated as
    ARM(1)

$
259,898,537


$
359,015,077


$
390,624,027Number of loans sold


150



533



297Aggregate face value

$
37,477,843


$
119,767,721
(3)

$
60,715,866(Loss)/gain on sale

$
(305,446
)(2)

$
1,871,633
(3)

$
1,276,566(Loss)/gain on sale percentage


(0.82
)%


1.56
%


2.10
%  20




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##### Table of Contents



(1)
    
    Originated ARM loans are
    principally fixed-rate for the first two years and six-month
    adjustable-rate for the remaining term.(2)
    
    Included in loss on sale for 2007
    are: net gain of $155,000 on the sale of Liberty Loans; a net
    gain of $286,000 on the sale of other loans originated for sale;
    a net loss of $828,000 on Alt-A loans both sold and
    transferred to portfolio at the lower of cost or market value;
    and a net recovery of $82,000 for previously established early
    payment default reserves for Liberty Loans sold in 2006.(3)
    
    At December 31, 2006,
    approximately $43 million of sold loans were anticipated to
    be repurchased. The gain on sale includes a reserve for the
    portion of the gain that relates to the gain recognized on the
    sold loans expected to be repurchased.  Property Types of Originated Loans Held for
    Investment.
  Loans Held for Investmentat December 31, 2007Percentage of TotalProperty Types

Principal Balance


Principal BalanceResidential 1-4 family

$
471,194,863



93.18
%Condos, co-ops, PUD dwellings


31,629,257



6.25
%Commercial


2,604,862



0.52
%Other


252,026



0.05
%Total

$
505,681,008



100.00
%     Geographic Dispersion of Originated
    Loans.
  Loans Originated


Loans Held for Investmentfor Year Ended December 31, 2007


at December 31, 2007Principal


Percentage of Total


Principal


Percentage of TotalLocation

Balance


Principal Balance


Balance


Principal BalanceNew York

$
83,931,641



28.77
%

$
152,787,321



30.21
%New Jersey


77,582,914



26.60
%


144,085,193



28.49
%Pennsylvania


22,072,129



7.57
%


46,635,066



9.22
%Florida


21,278,649



7.30
%


29,785,337



5.89
%Maryland


15,367,423



5.27
%


23,805,585



4.71
%Virginia


13,264,586



4.55
%


18,486,077



3.66
%Connecticut


12,949,156



4.44
%


19,238,601



3.80
%Massachusetts


10,115,200



3.47
%


24,104,963



4.77
%California


7,689,655



2.64
%


11,269,106



2.23
%North Carolina


5,066,800



1.74
%


6,163,275



1.22
%All Others


22,298,474



7.65
%


29,320,484



5.80
%Total

$
291,616,627



100.00
%

$
505,681,008
*


100.00
%     *
    
    UPB before net deferred fees and
    allowance for loan losses. 21




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##### Table of Contents



Delinquency. and/or
  December 31, 2007Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Current

0 - 30 days

$
200,864,760



39.72
%

$
248,843,281



49.21
%Delinquent

31 - 60 days


44,725,779



8.85
%


31,105,569



6.15
%61 - 90 days


1,064,362



0.21
%


4,859,698



0.96
%90+ days


44,466,458



8.79
%


6,312,811



1.25
%Bankruptcy

0 - 30 days


166,127



0.03
%


9,925,751



1.96
%Delinquent

31 - 60 days


120,973



0.03
%


1,260,665



0.25
%61 - 90 days










278,405



0.06
%90+ days


32,572,842



6.44
%


21,395,121



4.23
%Foreclosure*

0 - 30 days


1,336,973



0.26
%


21,252,751



4.20
%Delinquent

31 - 60 days


2,774,853



0.55
%


6,860,658



1.36
%61 - 90 days


190,867



0.04
%


7,353,839



1.45
%90+ days


177,397,014



35.08
%


146,232,459



28.92
%Total

$
505,681,008



100.00
%

$
505,681,008



100.00
%Total loans

0 - 30 days

$
202,367,860



40.02
%

$
280,021,783



55.38
%     *
    
    $181.7 million of loans were
    in various stages of the foreclosure process; our servicing
    practice for this portfolio is to move loans into our
    foreclosure collection process at an early stage of delinquency.  22




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##### Table of Contents



December 31, 2006Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Current

0 - 30 days

$
188,855,227



45.72
%

$
239,784,515



58.05
%Delinquent

31 - 60 days


31,652,388



7.66
%


23,558,856



5.70
%61 - 90 days


2,561,701



0.62
%


8,105,861



1.96
%90+ days


76,292,627



18.47
%


27,912,711



6.76
%Bankruptcy

0 - 30 days


134,904



0.03
%


2,039,871



0.49
%Delinquent

31 - 60 days


55,652



0.02
%


330,509



0.08
%61 - 90 days














90+ days


9,885,179



2.39
%


7,705,355



1.87
%Foreclosure(1)

0 - 30 days










1,894,422



0.46
%Delinquent

31 - 60 days










621,003



0.15
%61 - 90 days










1,258,886



0.31
%90+ days


103,629,240



25.09
%


99,854,929



24.17
%Total(2)

$
413,066,918



100.00
%

$
413,066,918



100.00
%Total loans

0 - 30 days

$
188,990,131



45.75
%

$
243,718,808



59.00
%     (1)
    
    $103.6 million of loans were
    in various stages of the foreclosure process; our servicing
    practice for this portfolio is to move loans into our
    foreclosure collection process at an early stage of delinquency.(2)
    
    Excludes $17.2 million of
    loans sold to investors, which the Company committed to
    repurchase, that are included on the face of the balance sheet
    at December 31, 2006.    Other
    Real Estate Owned
    2007


2006


2005Other real estate owned

$
58,838,831


$
22,977,725


$
19,936,274OREO as a percentage of total assets


3.48
%


1.38
%


1.50
%OREO sold

$
26,634,744


$
30,407,208


$
30,697,381Gain on sale

$
748,087


$
1,918,822


$
1,758,351  23




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##### Table of Contents



Government
    Regulation
    
    the Equal Credit Opportunity Act and Regulation B;
    the Federal Truth in Lending Act and Regulation Z;
    Home Ownership and Equity Protection Act, or HOEPA;
    the Real Estate Settlement Procedures Act, or RESPA, 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 Soldiers and Sailors Civil Relief Act;
    the Fair and Accurate Credit Transactions Act; and
    the CAN-SPAM Act.    
    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;
    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 practices;
    require us to combat money-laundering and avoid doing business
    with suspected terrorists;
    restrict the marketing practices we may use to find customers,
    including restrictions on outbound telemarketing; and
    in some cases, impose assignee liability on us as purchaser of
    mortgage loans as well as the entities that purchase our
    mortgage loans.    
    civil and criminal liability, including potential monetary
    penalties; 24




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##### Table of Contents




    loss of lending licenses or approved status required for
    continued lending and servicing 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 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;
    inability to sell or securitize our loans; or
    inability to obtain credit to fund our operations.    New
    Areas of Regulation
     25




---



##### Table of Contents



and/or
   26




---



##### Table of Contents



27




---



##### Table of Contents



(2001-1)
  Compliance,
    Quality Control and Quality Assurance
    Privacy
   28




---



##### Table of Contents



Fair
    Credit Reporting Act
      Home
    Mortgage Disclosure Act
      Telephone
    Consumer Protection Act and Telemarketing Consumer Fraud and
    Abuse Prevention Act
    Environmental
    Matters
    Employees
     29




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##### Table of Contents



ITEM 1A.  RISK
    FACTORS  Risks
    Related to Our Business
  We may
    experience higher loan losses than we have reserved for in our
    financial statements.
  and/or
  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.
    Our
    credit facilities require us to observe certain covenants, and
    our failure to satisfy such covenants could render us
    insolvent.
       30




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##### Table of Contents



If our
    lenders fail to renew our loans for additional terms or provide
    us with refinancing opportunities, our indebtedness will become
    due and payable in 2009.
    If we
    do not comply with certain minimum servicing standards in the
    Forbearance Agreements with the bank, the bank can transfer our
    rights as servicer to a third party.
    Our
    ability to fund operating expenses depends on our principal
    lender continuing to provide an adequate operating
    allowance.
    Our
    business is sensitive to, and can be materially affected by,
    changes in interest rates.
    
    All 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 the loans in our portfolio have
    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. Further, our
    adjustable-rate loans typically provide for less frequent
    adjustments in response to rate increases than do our
    borrowings, and sometimes also include interest rate caps. To
    the extent this is the case, an increase in interest rates would
    result in a greater increase in our interest expense than in our
    interest income, which would adversely affect our profitability.
    An increase in interest rates would adversely affect the value
    that we would receive upon a sale of loans that bear interest at
    fixed rates, and our results of operations could be adversely
    affected.
    An increase in our borrowing costs without an offsetting
    increase in revenue would cause our cash flow to decrease, which
    in turn may have an adverse impact on our ability to meet our
    monthly debt service obligations. In the event we are unable to
    meet our monthly debt service obligations for this or for any
    other reason, we would be in default under the obligations of
    our credit facilities and our lenders would have the right to
    accelerate payments under these facilities.
    An increase in interest rates would result in a slowdown of
    borrower prepayments and a reduction of revenue as purchase
    discount accreted into income would decline. An increase in
    interest rates may also lead to an increase in our borrower
    defaults, if borrowers have difficulties making their
    adjustable-rate mortgage payments, and a corresponding increase
    in nonperforming assets, which could decrease our 31




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##### Table of Contents



revenues and our cash flows, increase our loan servicing costs
    and our provision for loan losses, and adversely affect our
    profitability.    The
    bank may prevent our pursuing future business
    opportunities.
    We use
    estimates for recognizing revenue on a majority of our portfolio
    investments and our earnings would be reduced if actual results
    are less than our estimates.
    When
    we acquired S&D loans, the price we paid was based on a
    number of assumptions. Material differences between the
    assumptions we used in determining the value of S&D loans
    we acquired and our actual experience could harm our financial
    position.
  and/or
  If we
    do not obtain and maintain the appropriate state licenses, we
    will not be allowed to broker or service mortgage loans in some
    states, which would adversely affect our
    operations.
  and/or
   32




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##### Table of Contents



A
    significant amount of our mortgage loan originations 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.
  and/or
  We may
    not be adequately protected against the risks inherent in
    subprime residential mortgage loans.
    A
    number of our second lien mortgage loans are subordinated to ARM
    or interest-only mortgages that may be subject to monthly
    payment increases, which may result in delinquencies and
    increase our risk of loss on these loans.
    We are
    subject to losses due to fraudulent and negligent acts on the
    part of loan applicants, mortgage brokers, sellers of loans we
    acquired, vendors and our employees.
   33




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##### Table of Contents



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.
    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.
    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.
   34




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##### Table of Contents



We are
    exposed to the risk of environmental liabilities with respect to
    properties to which we take title.
    A loss
    of our Chairman may adversely affect our
    operations.
    Risks
    Related to Our Financial Statements
  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 reassessment of our allowance for loan
    losses.
   35




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##### Table of Contents



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.
    Risks
    Related to the Regulation of Our Industry
  New
    legislation and regulations directed at curbing predatory
    lending practices could restrict our ability to price, sell, or
    finance non-prime residential mortgage loans, which could
    adversely impact our earnings.
       36




---



##### Table of Contents



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.
   37




---



##### Table of Contents




    civil and criminal liability, including potential monetary
    penalties;
    loss of lending licenses or approved status required for
    continued servicing 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 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;
    inability to sell our loans; or
    inability to obtain credit to fund our operations.    If
    financial institutions face exposure stemming from legal
    violations committed by the companies to which they provide
    financing or underwriting services, this could negatively affect
    the market for whole-loans and mortgage-backed
    securities.
   38




---



##### Table of Contents



We may
    be subject to fines or other penalties based upon the conduct of
    our independent brokers.
    We are
    subject to reputational risks from negative publicity concerning
    the subprime mortgage industry.
          We are
    subject to significant legal and reputational risks and expenses
    under federal and state laws concerning privacy, use and
    security of customer information.
   39




---



##### Table of Contents



If
    many of our borrowers become subject to the Servicemembers Civil
    Relief Act of 2003, our cash flows and interest income may be
    adversely affected.
    Legislative
    action to provide mortgage relief may negatively impact our
    business.
    deed-in-lieu
     40




---



##### Table of Contents



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.  and/or
  We may
    be delisted from The Nasdaq Stock Market, in which case the
    price and liquidity of our common stock and our ability to
    access the capital markets would be adversely
    affected.
       41




---



##### Table of Contents



Our
    organizational documents, Delaware law and our credit facilities
    may make it harder for us to be acquired without the consent and
    cooperation of our board of directors, management and
    lender.
            Our
    quarterly operating results may fluctuate and cause our stock
    price to decline.
    
    the timing and amount of collections on loans in our portfolio;
    the rate of delinquency, default, foreclosure and prepayment on
    the loans we hold and service;
    changes in interest rates;
    deviations in the amount or timing of collections on loans from
    our expectations when we purchased or originated such loans; 42




---



##### Table of Contents




    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.    Various
    factors unrelated to our performance may cause the market price
    of our common stock to become volatile, which could harm our
    ability to access the capital markets in the
    future.
    Future
    sales of our common stock may depress our stock
    price.
    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
 43




---



##### Table of Contents



th th th
  th
  th
    th
  ITEM 3.
    LEGAL
    PROCEEDINGS     44




---



##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   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, 2005:First Quarter

$
13.75


$
8.65Second Quarter


14.00



9.00Third Quarter


12.95



9.50Fourth Quarter


10.40



7.35Year Ended December 31, 2006:First Quarter


8.99



6.53Second Quarter


8.55



7.02Third Quarter


8.20



6.75Fourth Quarter


7.10



4.60Year Ended December 31, 2007:First Quarter


5.91



4.22Second Quarter


5.20



4.25Third Quarter


5.20



1.44Fourth Quarter


4.98



0.25   Delisting Proceedings.
 45




---



##### Table of Contents



Holders.
  Dividend Policy.
  Performance Graph.
  
 46




---



##### Table of Contents



Securities Authorized for Issuance Under
    Equity.
  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


380,000


$
3.48



370,000Equity compensation plans
    not approved by security holders










Total


380,000


$
3.48



370,000   Recent
    Sales of Unregistered Securities
    ITEM 6.
    SELECTED
    FINANCIAL DATA    2007


2006


2005


2004


2003Statement of Income DataInterest income

$
155,922,774


$
141,857,267


$
99,046,543


$
59,481,422


$
42,699,710Purchase discount earned


4,956,814



8,924,838



11,214,721



9,234,896



5,154,601Total revenues


169,262,189



163,753,085



121,399,214



77,191,058



55,661,265Interest expense


143,253,577



113,073,332



68,329,965



33,166,815



21,601,651Amortization of deferred financing costs


2,597,856



4,568,744



4,105,218



2,761,476



1,979,208Collection, general and administrative


41,441,212



38,286,150



28,700,133



21,752,591



16,989,446Provision for loan losses


274,632,862



9,750,393



4,745,126



3,705,333



3,164,103Total expenses


463,338,556



166,842,624



106,957,738



61,881,105



44,239,420(Loss)/income before extraordinary item


(294,076,367
)


(3,089,539
)


14,441,476



15,309,953



11,421,845Gain on forgiveness of debt


284,246,320















(Loss)/income before provision for income taxes


(9,830,047
)


(3,089,539
)


14,441,476



15,309,953



11,421,845Net (loss)/income

$
(8,639,004
)

$
(1,761,038
)

$
7,868,775


$
8,366,608


$
5,639,075(Loss)/earnings per share, basic

$
(1.09
)

$
(0.23
)

$
1.19


$
1.41


$
0.95 47




---



##### Table of Contents



2007


2006


2005


2004


2003(Loss)/earnings per share, diluted

$
(1.09
)

$
(0.23
)

$
1.09


$
1.25


$
0.86Book value per share

$
4.90


$
5.93


$
6.31


$
4.31


$
2.94Balance Sheet DataNotes receivable, principal

$
1,289,550,285


$
1,174,039,567


$
934,657,413


$
811,885,856


$
465,553,870Purchase discount


(10,667,649
)


(12,423,746
)


(17,809,940
)


(32,293,669
)


(25,678,165
)Allowance for loan losses


(230,809,938
)


(52,424,375
)


(67,276,155
)


(89,628,299
)


(46,247,230
)Net notes receivable


1,048,072,698



1,109,191,446



849,571,318



689,963,888



393,628,475Originated loans held for sale






4,114,284



12,844,882



16,851,041



27,372,779Originated loans held for investment


501,555,859



423,549,261



373,390,988



110,827,148



9,714,952Allowance for loan losses


(23,851,715
)


(866,466
)


(1,075,053
)


(330,874
)


(178,283
)Net originated loans held for investment


477,704,144



422,682,795



372,315,935



110,496,274



9,536,669Other real estate owned


58,838,831



22,977,725



19,936,274



20,626,156



13,981,665Total assets


1,692,513,202



1,668,357,999



1,332,792,692



883,592,242



474,059,988Notes payable, net of debt
    discount(1)


1,628,537,798



1,520,217,264



1,203,880,994



805,586,997



426,356,304Total stockholders equity


39,290,675



47,553,349



47,594,168



26,145,833



17,408,959Selected Performance RatiosReturn on average
    assets(2)


(0.47
)%


(0.12
)%


0.71
%


1.23
%


1.26
%Return on average
    equity(3)


(19.90
)%


(3.70
)%


21.34
%


38.42
%


38.65
%Total revenue/average
    assets(4)


9.25
%


10.91
%


10.95
%


11.36
%


12.40
%Interest expense/average
    assets(5)


7.83
%


7.84
%


6.54
%


5.29
%


5.25
%Collection, general and administrative expenses as a percentage
    of average
    assets(6)


2.26
%


2.55
%


2.59
%


3.20
%


3.78
%Efficiency
    ratio(7)


177.02
%


83.03
%


58.61
%


52.72
%


52.96
%Balance Sheet RatiosEquity to assets


2.32
%


2.85
%


3.57
%


2.96
%


3.67
%Allowance for loan losses/total notes receivable


18.05
%


4.51
%


7.34
%


11.50
%


10.52
%Allowance for loan losses/total loans held for investment


4.76
%


0.20
%


0.29
%


0.30
%


1.84
% 48




---



##### Table of Contents



2007


2006


2005


2004


2003OtherNonaccretable purchase discount/total notes
    receivable(8)


7.99
%


5.21
%


2.62
%


N/A



N/ASelected Performance DataLoans acquired, at purchase price

$
440,678,212


$
572,011,360


$
468,324,936


$
544,288,354


$
213,638,801Loan originations

$
291,616,627


$
384,743,578


$
427,260,472


$
200,301,285


$
97,431,553     (1)
    
    Debt discount was $232,365,
    $515,799 and $3,002,767 for 2007, 2006 and 2005, respectively.(2)
    
    Computed by dividing net income by
    average total assets for the period using beginning and ending
    period balances.(3)
    
    Computed by dividing net income by
    average equity for the period using beginning and ending period
    balances.(4)
    
    Computed by dividing total revenue
    by average total assets for the period using beginning and
    ending period balances.(5)
    
    Computed by dividing interest
    expense, inclusive of amortization of deferred financing costs,
    by average total assets for the period using beginning and
    ending period balances.(6)
    
    Computed by dividing collection,
    general and administrative expenses by average total assets for
    the period using beginning and ending period balances.(7)
    
    Computed by dividing collection,
    general and administrative expenses by total revenues less
    interest expense and amortization of deferred financing costs.(8)
    
    See Notes to the Consolidated
    Financial Statements for details on nonaccretable purchase
    discount.  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
  Form 10-K.
  Executive
    Summary
   49




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##### Table of Contents



Application
    of Critical Accounting Policies and Estimates
    Notes Receivable and Income Recognition No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
    Transfer (SOP 03-3)
 50




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##### Table of Contents



Discounts on Acquired Loans SOP 03-3,
        SOP 03-3
  Allowance for Loan Losses
 51




---



##### Table of Contents



SOP 03-3, SOP 03-3.
  Originated Loans Held for Investment
      Other Real Estate Owned
  Results
    of Operations
  Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Overview.
 52




---



##### Table of Contents



Revenues.
       53




---



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Operating Expenses.
     54




---



##### Table of Contents



55




---



##### Table of Contents



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Overview.
  Revenues.
     56




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##### Table of Contents



Operating Expenses.
  30-day
   57




---



##### Table of Contents



Liquidity
    and Capital Resources
  General
   58




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##### Table of Contents



Short-term Investments.
  Cost of Funds.
  In Accordance with the


Under the Terms ofTerms of the Forbearance


Credit AgreementsAgreements Effective


Excluded from theDecember 28, 2007


Forbearance AgreementsFHLB 30-day
    LIBOR advance rate plus 2.35%

$



$
18,409,572FHLB 30-day
    LIBOR advance rate plus 2.50%






70,962,844LIBOR plus 2.25%


1,000,000,000



LIBOR plus 2.75%


414,397,747



10.00% (fixed)


125,000,000



$
1,539,397,747


$
89,372,416     Cash
    Flow from Operating, Investing and Financing
    Activities
   59




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##### Table of Contents



Offering
    of Common Stock
   60




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##### Table of Contents



Borrowings
    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.    Loan 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.  Terms of the Restructured
    Indebtedness.
  Outstanding


Applicable 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  61




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##### Table of Contents



(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)(1)

Applicable Interest RateImmediately after restructuring

$
1.63 billion



7.49
%Immediately prior to restructuring

$
1.93 billion



7.71
%     (1)
    
    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;
    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.
 62




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##### Table of Contents




    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;
    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.
  Gain on Debt Forgiveness.
 63




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##### Table of Contents



Recent
    Development  March 2008 Modifications to Forbearance
    Agreements and Refinancing of BOS Loan
        
    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.        Master
    Credit Facilities  Term Loans
   64




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##### Table of Contents



General. 30-day
    Interest Rates and Fees. 30-day 30-day
  For Loans FundedPrior to July 1, 2005

On or After July 1, 2005If the
    30-day
    advance rate was

the applicable margin was

the applicable margin wasLess than 2.26%

350 basis points

300 basis points2.26 to 4.50%

325 basis points

275 basis pointsGreater than 4.50%

300 basis points

250 basis points   August
    2006 Modifications to Huntington National Bank Financing
    Arrangements
    December
    2006 Modifications to Huntington National Bank Financing
    Arrangements
  30-day 30-day
  If the
    30-day
    advance rate was

the applicable margin wasLess than 2.26%

300 basis points2.26 to 4.50%

260 basis pointsGreater than 4.50%

235 basis points  65




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##### Table of Contents



30-day
  If the
    30-day
    advance rate was

the applicable margin wasLess than 2.26%

300 basis points2.26 to 4.50%

225 basis pointsGreater than 4.50%

200 basis points   30-day
  For Loans FundedPrior to November 15, 2006

On or After November 15, 2006Purchase of First

Tribeca Originated Loans/Mortgages

Second Mortgage PurchasesIf the
    30-day
    advance rate was

the applicable margin was

the applicable margin was

the applicable margin wasLess than 2.26%

300 basis points

300 basis points

300 basis points2.26 to 4.50%

275 basis points

225 basis points

260 basis pointsGreater than 4.50%

250 basis points

200 basis points

235 basis points     Principal; Prepayments; Termination of
    Commitments.
    Covenants; Events of Default.
  Security.
 66




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##### Table of Contents



Bank
    of Scotland Term Loan
  30-day
  If the
    30-day
    advance rate is

the applicable margin isLess than 2.26%

300 basis points2.26 to 4.50%

275 basis pointsGreater than 4.50%

250 basis points         Warehouse
    Facilities
  Tribeca Warehouse.
   67




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##### Table of Contents



Flow Warehouse.
      Elimination
    of Success Fees
      Interest
    Rate Caps
    non-amortizing 30-day
 68




---



##### Table of Contents



Interest Rate Caps

Notional Amount


Expiration Date


Premium Paid


Fair ValueCap 1

$
200,000,000



September 30, 2008


$
102,000


$
Cap 2


400,000,000



September 30, 2008



90,000



Total

$
600,000,000






$
192,000


$
   Recent
    Development
  non-amortizing,
    Financing
    Activities and Contractual Obligations
    Weighted Average


Minimum Contractual ObligationsInterest Rate


(Excluding Interest)As of 12/31/07


Total


Less Than 1 yr


1 - 3 yrs


3 - 5 yrs


ThereafterContractual ObligationsNotes Payable


7.46
%

$
1,628,770,163


$
63,879,379


$
1,564,890,784


$



$
Warehouse Lines


7.355
%


1,033,073







1,033,073







Operating LeasesRent Obligations






9,547,179



1,583,092



3,157,676



3,209,304



1,597,107Capital Lease Obligations






569,941



220,635



349,306







Employment Agreements






1,600,000



700,000



900,000







Total Contractual Cash Obligations





$
1,641,520,356


$
66,383,106


$
1,570,330,839


$
3,209,304


$
1,597,107     30-day
 69




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##### Table of Contents



Safe
    Harbor Statement
  Form 10-K Form 10-Q,
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Impact of
    Inflation
    Interest
    Rate Risk
   70




---



##### Table of Contents



30-day
    Real
    Estate Risk
   71




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-2
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f).
      Form 10-K Form 10-K.
 72




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##### Table of Contents



Disclosure
    Controls and Procedures
  Form 10-K, Rule 13a-15(e)
  Changes
    in Internal Controls over Financial Reporting
  Form 10-K Form 10-K,
  ITEM 9B.
    OTHER
    INFORMATION   73




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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    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   74




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Form 10-K:
    page F-2
        ExhibitNumber3
.1

Fifth Amended and Restated Certificate of Incorporation.
    Incorporated by reference to Appendix A to the
    Registrants Definitive Information Statement on
    Schedule 14C, filed with the Securities and Exchange
    Commission (the Commission) on January 20, 2005.3
.2

Amended and Restated By-laws. Incorporated by reference to
    Appendix B to the Registrants Definitive Information
    Statement on Schedule 14C, filed with the Commission on
    January 20, 2005.10
.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

Warehousing Credit and Security Agreement, dated as of
    September 30, 2003, between Tribeca Lending Corp. and Sky
    Bank (the Warehouse Credit Agreement). Incorporated
    by reference to Exhibit 10.3 to the 2004
    10-K.10
.4

Letter, dated as of March 24, 2005, from Sky Bank to
    Tribeca Lending Corp. Incorporated by reference to
    Exhibit 10.4 to the 2004
    10-K.10
.5

Second Amendment to the Warehouse Credit Agreement, effective as
    of May 19, 2005, between Tribeca Lending Corp. and Sky
    Bank. Incorporated by reference to Exhibit 10.5 to the
    Registration Statement.10
.6

Form of Term Loan and Security Agreement between subsidiaries of
    Tribeca Lending Corp. and Sky Bank. Incorporated by reference to
    Exhibit 10.5 to the 2004
    10-K.10
.7

Agreement, dated March 20, 1997, between the Registrant and
    Sky Bank (f/k/a The Citizens Banking Registrant) (the 1997
    Agreement). Incorporated by reference to
    Exhibit 10(e) to the Registrants Annual Report on
    Form 10-KSB
    for the fiscal year ended December 31, 1997, filed with the
    Commission on May 14, 1998.10
.8

Modification to 1997 Agreement, dated March 19, 2003,
    between the Registrant and Sky Bank. Incorporated by reference
    to Exhibit 10.8 to the Registration Statement.10
.9

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
.10

Mortgage Loan Purchase and Sale Agreement, dated as of
    September 24, 2004, between the Registrant and Master
    Financial, Inc. Incorporated by reference to Exhibit 10.1
    to the Registrants Current Report on
    Form 8-K,
    filed with the Commission on October 20, 2004. 75




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##### Table of Contents



ExhibitNumber10
.11

Mortgage Loan Purchase and Sale Agreement, dated as of
    June 30, 2004, between the Registrant and Bank One, Inc.
    Incorporated by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K/A,
    filed with the Commission on July 16, 2004.10
.12

Registration Rights Agreement, effective as of October 1,
    2004, between the Registrant and Jeffrey R. Johnson.
    Incorporated by reference to Exhibit 10.10 to the 2004
    10-K.10
.13

Sublease Agreement, dated as of March 4, 2005, between the
    Registrant and Lehman Brothers Holdings Inc. Incorporated by
    reference to Exhibit 10.12 to the 2004
    10-K.10
.14

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
.15

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
.16

Employment Agreement, dated as of June 7, 2005, between the
    Registrant and Joseph Caiazzo. Incorporated by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K,
    filed with the Commission on June 9, 2005.10
.17

Letter, dated as of July 19, 2005, from Sky Bank to the
    Registrant. Incorporated by reference to Exhibit 10.20 to
    Amendment No. 2 to the Registration Statement, filed with
    the Commission on July 19, 2005 (Amendment
    No. 2).10
.18

Letter, dated as of July 19, 2005, from Sky Bank to Tribeca
    Lending Corp. Incorporated by reference to Exhibit 10.21 to
    Amendment No. 2.10
.19

Underwriting Agreement, dated July 19, 2005, between the
    Registrant and Ryan Beck & Co., Inc. Incorporated by
    reference to Exhibit 10.3 to the Registrants Current
    Report on
    Form 8-K,
    filed with the Commission on July 20, 2005.10
.20

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
.21

Master Credit and Security Agreement, dated as of
    February 28, 2006, among Tribeca Lending Corp., Sky Bank
    and those subsidiaries of Tribeca Lending Corp. listed on the
    signature page to the agreement. Incorporated by reference to
    Exhibit 10.24 to the 2005
    10-K.10
.22

Master Credit and Security Agreement, dated as of March 24,
    2006, among Tribeca Lending Corp., BOS (USA) Inc. and those
    subsidiaries of Tribeca Lending Corp. listed on the signature
    page to the agreement. Incorporated by reference to
    Exhibit 10.25 to the 2005
    10-K.10
.23

Employment Agreement, dated as of March 1, 2006, between
    the Registrant and Alexander Gordon Jardin. Incorporated by
    reference to Exhibit 10.26 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2006, filed with
    the Commission on August 14, 2006.10
.24

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, 2006.10
.25

Restricted Stock Grant Agreement, dated as of June 15,
    2006, between the Registrant and Alexander Gordon Jardin.
    Incorporated by reference to Exhibit 10.28 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2006, filed with
    the Commission on August 14, 2006.10
.26

Modification Letter dated as of June 27, 2006, from Sky
    Bank to the Registrant. Incorporated by reference to
    Exhibit 10.1 of the Registrants current report on
    Form 8-K,
    filed with the Commission on August 8, 2006.10
.27

Employment Agreement dated as of February 1, 2006 between
    the Registrant and William Sullivan. Incorporated by reference
    to Exhibit 10.30 to the Registrants Quarterly Report
    on
    Form 10-Q
    for the quarterly period ended September 30, 2006, filed
    with the Commission on November 14, 2006. 76




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##### Table of Contents



ExhibitNumber10
.28

Flow Warehousing Credit and Security Agreement dated
    August 10, 2006 between the Registrant and Sky Bank.
    Incorporated by reference to Exhibit 10.31 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2006, filed
    with the Commission on November 14, 2006.10
.29

Rate Cap Transaction Agreement dated August 29, 2006
    between LaSalle Bank National Association and the Registrant.
    Incorporated by reference to Exhibit 10.32 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2006, filed
    with the Commission on November 14, 2006.10
.30

Interest Rate Cap Transaction Agreement dated September 11,
    2006 between HBOS Treasury Services and the Registrant.
    Incorporated by reference to Exhibit 10.33 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2006, filed
    with the Commission on November 14, 2006.10
.31

Modification Letter dated as of August 2, 2006, from Sky
    Bank to the Registrant. Incorporated by reference to
    Exhibit 10.2 of the Registrants current report on
    Form 8-K,
    filed with the Commission on August 8, 2006.10
.32

Amendment No. 1 to Master Credit and Security Agreements,
    dated as of December 1, 2006, between the Registrant,
    Tribeca Lending Corporation and Sky Bank. Incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K,
    filed with the Commission on December 19, 2006.10
.33

Modification Letter, dated as of December 12, 2006, from
    Sky Bank to the Registrant. Incorporated by reference to
    Exhibit 10.2 to the Registrants Current Report on
    Form 8-K,
    filed with the Commission on December 19, 2006.10
.34

Asset Purchase and Sale Agreement, dated as of February 14,
    2007, between The New York Mortgage Company, LLC, as Seller, and
    Tribeca Lending Corp., as Buyer.10
.35

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.10
.36

Continuing and Unconditional Guaranty, dated as of
    August 30, 2007, by the Company, as Guarantor, to and for
    the benefit of BOS (USA) Inc. Incorporated by reference to
    Exhibit 10.6 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007, filed
    with the Commission on March 31, 2008.10
.37

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
.38

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
.39

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
.40

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
.41

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. 77




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##### Table of Contents



ExhibitNumber10
.42

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
.43

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
.44

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
.45

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
.46

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, 2008.10
.47

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
.48

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
.49

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
.50

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
.51

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
.52*

ISDA Master (Swap) Agreement between the Registrant and the
    Huntington National Bank, dated as of February 27, 2008 and
    the Schedule thereto.21
.1*

Subsidiaries of the Registrant.23
.1*

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
    2002.31
.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. 78




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##### Table of Contents



SIGNATURES
      By:
    /s/  ALEXANDER
    GORDON JARDIN        Signature

Title

Date/s/  THOMAS
    J. AXONThomas
    J. Axon

President and Chairman of the Board

April 2, 2008/s/  A.
    GORDON JARDINA.
    Gordon Jardin

Chief Executive Officer
    (Principal Executive Officer)

April 2, 2008/s/  PAUL
    D. COLASONOPaul
    D. Colasono

Executive Vice President and Chief Financial Officer (Principal
    Financial Officer)

April 2, 2008/s/  WILLIAM
    F. SULLIVANWilliam
    F. Sullivan

Chief Operating Officer

April 2, 2008/s/  KIMBERLEY
    SHAWKimberley
    Shaw

Vice President and Treasurer
    (Controller)

April 2, 2008/s/  MICHAEL
    BERTASHMichael
    Bertash

Director

April 2, 2008/s/  FRANK
    EVANSFrank
    Evans

Director

April 2, 2008/s/  STEVEN
    LEFKOWITZSteven
    Lefkowitz

Director

April 2, 2008/s/  ALLAN
    R. LYONSAllan
    R. Lyons

Director

April 2, 2008  79




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  TABLE OF
    CONTENTS
  PageReport of Independent Registered Public
    Accounting FirmConsolidated Financial Statements:Consolidated Balance Sheets at December 31,
    2007 and 2006


F-2Consolidated Statements of Income for the years
    ended December 31, 2007, 2006 and 2005


F-3Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2007, 2006 and
    2005


F-4Consolidated Statements of Cash Flows for the
    years ended December 31, 2007, 2006 and 2005


F-5Notes to Consolidated Financial Statements


F-6




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS

DECEMBER
    31, 2007 AND 2006  2007


2006ASSETSCash and cash equivalents

$
18,266,066


$
3,983,104Restricted cash


40,326,521



32,689,154Short-term investments


4,735,308



20,311,193Notes Receivable:Principal


1,289,550,285



1,174,039,567Purchase discount


(10,667,649
)


(12,423,746
)Allowance for loan losses


(230,809,938
)


(52,424,375
)Net notes receivable


1,048,072,698



1,109,191,446Originated loans held for sale






4,114,284Originated loans held for investment:Principal, net of deferred fees and costs


501,555,859



423,549,261Allowance for loan losses


(23,851,715
)


(866,466
)Originated loans held for investment, net


477,704,144



422,682,795Accrued interest receivable


22,989,901



22,010,027Other real estate owned


58,838,831



22,977,725Deferred financing costs, net


8,808,089



10,622,961Other receivables


4,917,598



6,614,386Building, furniture and equipment, net


3,363,306



3,715,908Income tax receivable


3,682,861



8,594,119Other assets


807,879



850,897Total assets

$
1,692,513,202


$
1,668,357,999LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Notes payable, net of debt discount of $232,365 in 2007 and
    $515,799 in 2006

$
1,628,537,798


$
1,520,217,264Financing agreements


1,033,073



55,962,315Accounts payable and accrued expenses


23,108,149



22,875,527Repurchase obligation






18,094,061Deferred tax liability


543,507



3,655,483Total liabilities


1,653,222,527



1,620,804,650Commitments and ContingenciesStockholders Equity:Preferred stock, $.01 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:
    8,025,295 in 2007 and 2006


23,091,510



22,715,180Retained earnings


16,199,165



24,838,169Total stockholders equity


39,290,675



47,553,349Total liabilities and stockholders equity

$
1,692,513,202


$
1,668,357,999    F-2




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF INCOME

YEARS
    ENDED DECEMBER 31, 2007, 2006 and 2005  2007


2006


2005REVENUES:Interest income

$
155,922,774


$
141,857,267


$
99,046,543Purchase discount earned


4,956,814



8,924,838



11,214,721Gain on sale of notes receivable


31,118



163,911



1,310,887(Loss) / gain on sale of originated loans


(305,446
)


1,871,633



1,276,566Gain on sale of other real estate owned


748,087



1,918,822



1,758,351Prepayment penalties and other income


7,908,842



9,016,614



6,792,146Total revenues


169,262,189



163,753,085



121,399,214OPERATING EXPENSES:Interest expense


143,253,577



113,073,332



68,329,965Collection, general and administrative


41,441,212



38,286,150



28,700,133Provision for loan losses


274,632,862



9,750,393



4,745,126Amortization of deferred financing costs


2,597,856



4,568,744



4,105,218Depreciation


1,413,049



1,164,005



1,077,296Total expenses


463,338,556



166,842,624



106,957,738(LOSS)/INCOME BEFORE GAIN ON FORGIVENESS OF DEBT


(294,076,367
)


(3,089,539
)


14,441,476GAIN ON FORGIVENESS OF DEBT


284,246,320







(LOSS)/INCOME BEFORE PROVISION FOR INCOME TAXES


(9,830,047
)


(3,089,539
)


14,441,476INCOME TAX (BENEFIT)/PROVISION


(1,191,043
)


(1,328,501
)


6,572,701NET (LOSS)/INCOME

$
(8,639,004
)

$
(1,761,038
)

$
7,868,775NET (LOSS)/INCOME PER COMMON SHARE:Basic

$
(1.09
)

$
(0.23
)

$
1.19Diluted

$
(1.09
)

$
(0.23
)

$
1.09WEIGHTED AVERAGE NUMBER OF SHARES Outstanding, basic


7,941,545



7,692,233



6,629,108Diluted potential common shares










574,664Outstanding, diluted


7,941,545



7,692,233



7,203,772    F-3




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

YEARS
    ENDED DECEMBER 31, 2007, 2006 and 2005  Common Stock andAdditional Paid-in Capital


Retained


UnearnedShares


Amount


Earnings


Compensation


TotalBALANCE, JANUARY 1, 2005


6,062,295


$
8,514,401


$
18,730,432


$
(1,099,000
)

$
26,145,833Stock offering, net


1,265,000



12,592,616











12,592,616Exercise of options


221,000



224,785











224,785Restricted stock activity


(9,000
)


(39,550
)






801,709



762,159Net income










7,868,775







7,868,775BALANCE, DECEMBER 31, 2005


7,539,295



21,292,252



26,599,207



(297,291
)


47,594,168Reclassification adjustment on adoption of FASB 123(R)






(297,291
)






297,291



Exercise of options and warrants


372,000



452,555











452,555Stock-based compensation


114,000



689,753











689,753Excess tax benefit






577,911











577,911Net (loss)










(1,761,038
)






(1,761,038
)BALANCE, DECEMBER 31, 2006


8,025,295


$
22,715,180


$
24,838,169


$



$
47,553,349Stock-based compensation






376,330











376,330Net (loss)










(8,639,004
)






(8,639,004
)BALANCE, DECEMBER 31, 2007


8,025,295


$
23,091,510


$
16,199,165






$
39,290,675    F-4




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

YEARS
    ENDED DECEMBER 31, 2007, 2006 and 2005  2007


2006


2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)/income

$
(8,639,004
)

$
(1,761,038
)

$
7,868,775Adjustments to reconcile income to net cash provided by/(used
    in) operating activities:Gain on sale of notes receivable


(31,118
)


(163,911
)


(1,310,887
)Gain on sale of other real estate owned


(748,087
)


(1,918,822
)


(1,758,351
)Loss/(gain) on sale of originated loans


305,446



(1,871,633
)


(1,276,566
)Gain on forgiveness of debt


(284,246,320
)






Depreciation


1,413,049



1,164,005



1,077,296Amortization of deferred costs and fees on originated loans, net


970,999



1,448,767



157,317Amortization of deferred financing costs


2,597,856



4,568,744



4,105,218Amortization of debt discount


131,611



1,265,050



825,558Settlement payment of success fee






(4,500,000
)


Excess tax benefit






(577,911
)


Non-cash compensation


376,330



689,753



762,159Proceeds from the sale of and principal collections on loans
    held for sale


33,464,135



39,538,033



58,096,013Origination of loans held for sale


(34,473,560
)


(30,785,901
)


(58,281,668
)Deferred tax provision


(3,111,976
)


2,868,013



832,190Purchase discount earned


(4,956,814
)


(8,924,838
)


(11,214,721
)Provision for loan losses


274,632,862



9,750,393



4,745,126Changes in operating assets and liabilities:Accrued interest receivable


(979,874
)


(8,668,063
)


(4,835,712
)Other receivables


1,696,788



695,119



(1,943,005
)Income tax receivable


4,911,257



(7,499,386
)


Other assets


43,018



(334,135
)


2,164,174Accounts payable and accrued expenses


(607,787
)


5,351,470



3,760,491Net cash (used in)/provided by operating activities


(17,251,189
)


333,709



3,773,407CASH FLOWS FROM INVESTING ACTIVITIES:Increase in restricted cash


(7,637,367
)


(11,128,402
)


(2,488,110
)Purchase of notes receivable


(440,678,212
)


(572,011,360
)


(468,324,936
)Principal collections on notes receivable


185,060,253



281,742,236



271,674,377Principal collections on loans held for investment


148,625,495



233,677,204



102,176,991Origination of loans held for investment


(257,143,067
)


(353,957,677
)


(367,253,790
)Repurchase of loans sold


(8,235,468
)






Putback of acquired notes receivable


16,418,168







Net investment in short-term securities


15,575,885



(3,357,174
)


(16,954,019
)Proceeds from sale of other real estate owned


27,424,458



29,126,493



32,343,836Proceeds from sale of loans held for investment


12,716,251



66,246,123



8,375,669Proceeds from sale of notes receivable


20,998,838



3,807,050



15,120,539Purchase of building, furniture and fixtures


(1,060,447
)


(850,432
)


(2,899,445
)Net cash used in investing activities


(287,935,213
)


(326,705,939
)


(428,228,888
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from notes payable


788,322,875



910,208,607



836,608,815Principal payments of notes payable


(380,285,775
)


(596,359,305
)


(437,443,092
)Payment for debt restructure


(12,000,000
)






Proceeds from financing agreements


387,825,703



432,517,720



429,592,146Principal payments of financing agreements


(442,754,945
)


(433,839,489
)


(411,848,265
)Repurchase obligation


(18,094,061
)


18,094,061



Excess tax benefit






577,911



Payment of deferred financing costs


(3,544,432
)


(5,183,233
)


(6,512,750
)Exercise of options






452,555



224,785Proceeds from issuance of common stock










12,592,616Net cash provided by financing activities


319,469,365



326,468,827



423,214,255NET CHANGE IN CASH AND CASH EQUIVALENTS


14,282,962



96,598



(1,241,226
)CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


3,983,104



3,886,506



5,127,732CASH AND CASH EQUIVALENTS, END OF YEAR

$
18,266,066


$
3,983,104


$
3,886,506SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash payments for interest

$
179,280,158


$
109,246,114


$
64,743,849Cash payments for taxes

$
6,459,770


$
3,303,594


$
3,628,439NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer of loans from held for sale to loans held for investment

$
5,717,213


$
483,604


$
5,278,073Transfer to OREO

$
62,537,477


$
30,249,122


$
48,239,717Capital lease

$



$



$
916,890    F-5




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

YEARS
    ENDED DECEMBER 31, 2007, 2006 and 2005  1.
    ORGANIZATION
    AND BUSINESS            2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation
     F-6




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Operating Segments Disclosures about
    Segments of an Enterprise and Related Information
  Earnings Per Share
  Cash and Cash Equivalents
  Restricted Cash
  Short-term Investments
  Notes Receivable and Income Recognition
 F-7




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Discounts on Acquired Loans SOP 03-3,
      SOP 03-3
  Allowance for Loan Losses
 F-8




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SOP 03-3, SOP 03-3.
  Gain on Debt Forgiveness
  Accounting by Debtors and Creditors for Troubled Debt
    Restructurings EITF 02-4 Determining Whether a Debtors Modification or
    Exchange of Debt Instruments in within the Scope of FASB
    Statement No. 15
   F-9




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 96-19.
  Originated Loans Held for Sale loan-by-loan
        Originated Loans Held for Investment
      Other Real Estate Owned
 F-10




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivatives Accounting for Derivative Instruments
    and Hedging Activities
        Building, Furniture and Equipment
  Deferred Financing Costs
  Retirement Plan
  Income Taxes Accounting for
    Income Taxes
 F-11




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Prepayment Penalties and Other Income
  Fair Value of Financial Instruments Disclosures about
    Fair Value of 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.
    Short-term Investments These
    investments mature monthly; therefore, the carrying values
    reported in the consolidated balance sheets are a reasonable
    estimate of fair value.c.
    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, 2007 and 2006 was
    equivalent to their carrying value of $1,048,072,698 and
    $1,109,191,446, respectively.  d.
    Loans Held for Investment, Loans Held for Sale The carrying values reported in the
    consolidated balance sheets are a reasonable estimate of fair
    value. The fair value of loans held for investment at
    December 31, 2007 and 2006 was equivalent to their carrying
    value of $477,704,144 and $422,682,795, respectively. The fair
    value of loans held for sale at December 31, 2006 was
    equivalent to their carrying value of $4,114,284. There were no
    loans held for sale at December 31, 2007.  e.
    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. The fair value
    at December 31, 2007 and 2006 was $1,033,073 and
    $55,962,315, respectively.  f.
    Long-term Debt The interest rate on
    the Companys long-term debt (notes payable) is a variable
    rate that resets monthly; therefore, the carrying value reported
    in the balance sheet approximates fair value at $1,628,537,798
    and $1,520,217,264 at December 31, 2007 and 2006,
    respectively.  Comprehensive Income Reporting
    Comprehensive Income
 F-12




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-Based Compensation Plans Accounting for Stock Issued to
    Employees Accounting for Stock-Based
    Compensation Share-Based Payment
        2005Net income  as reported

$
7,868,775Stock-based compensation expense,
    actual(1)


411,566Stock-based compensation expense determined under fair value
    method, net of related tax
    effects(2)


(868,411
)Net income  pro forma

$
7,411,930Earnings per share:Basic  as reported

$
1.19Basic  pro forma

$
1.12Diluted  as reported

$
1.09Diluted  pro forma

$
1.03     (1)
    
    The stock-based compensation cost,
    net of related tax effects, included in the determination of net
    income  as reported.(2)
    
    The stock-based compensation
    cost, net of related tax effects, that would have been included
    in the determination of net income if the fair value based
    method had been applied to all awards. F-13




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Recent
    Accounting Pronouncements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, including an amendment of FASB Statement
    No. 115.
  Fair Value
    Measurements
  Accounting for Uncertainty in Income
    Taxes Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
    and/or
 F-14




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    NOTES RECEIVABLE,
    LOANS HELD FOR INVESTMENT AND LOANS HELD FOR SALE, PURCHASE
    DISCOUNT AND ALLOWANCE FOR LOAN LOSSES    2007


2006Real estate secured

$
1,245,386,489


$
1,134,576,390Manufactured and mobile homes


17,648,364



21,093,954Unsecured


26,515,432



18,369,2231,289,550,285



1,174,039,567Less:Purchase discount


(10,667,649
)


(12,423,746
)Allowance for loan losses


(230,809,938
)


(52,424,375
)Balance

$
1,048,072,698


$
1,109,191,446       2007


2006Real estate secured

$
504,852,283


$
408,682,923Consumer unsecured


168,686



122,396Manufactured homes


83,340



83,727505,104,309



408,889,046
*Less:Net deferred costs and fees


(3,548,450
)


(2,343,425
)Allowance for loan losses


(23,851,715
)


(866,466
)Balance

$
477,704,144


$
405,679,155
*     *
    
    Excludes $17.0 million of
    loans, net of fees, sold to investors, which the Company
    committed to repurchase, that are included on the face of the
    balance sheet at December 31, 2006.   F-15




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Loans HeldYear Ending December 31,

Notes Receivable


for Investment2008

$
15,077,799


$
3,194,9322009


16,017,728



3,421,6162010


17,231,815



3,602,7462011


18,009,074



3,802,3922012


18,529,740



20,833,588Thereafter


1,000,381,594



442,848,870$
1,085,247,750


$
477,704,144       2007


2006


2005Balance, beginning

$
52,424,375


$
67,276,155


$
89,628,299Provision for loan losses


239,437,979



9,545,884



3,677,727Loans transferred to OREO


(7,751,432
)


(12,421,404
)


(10,233,830
)Loans charged off


(53,116,363
)


(12,349,469
)


(13,345,238
)Other, net


(184,621
)


(373,209
)


(2,450,803
)Balance, ending

$
230,809,938


$
52,424,375


$
67,276,155     2007


2006


2005Balance, beginning

$
866,466


$
1,078,162


$
330,874Provision for loan losses


24,685,293



(24,612
)


874,385Loans transferred to OREO


(1,475,403
)


(33,848
)


(104,889
)Loans charged off


(224,641
)


(177,848
)


(22,208
)Balance, ending

$
23,851,715


$
866,466


$
1,078,162      F-16




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Total impaired notes receivable

$
330,212,508


$
251,210,748


$
244,986,933Allowance for loan losses related to impaired notes receivable

$
100,842,743


$
44,679,113


$
43,691,572Interest income recognized

$
16,081,404


$
14,225,184


$
18,467,499Average balance of impaired notes receivable during the year

$
290,711,628


$
248,098,840


$
275,913,834     2007


2006


2005Total impaired loans held for investment

$
182,005,404


$
110,107,533


$
55,867,250Allowance for loan losses related to loans held for investment

$
9,593,929


$
866,466


$
1,075,053Interest income recognized

$
4,944,849


$
1,792,406


$
1,212,187Average balance of impaired loans held for investment during the
    year

$
146,056,479


$
93,455,505


$
29,847,307      F-17




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SOP 03-3
  2007


2006


2005Accretable
    DiscountBalance, beginning of period

$
12,842,755


$
11,360,617


$
New acquisitions


29,080



2,549,873



11,342,596Accretion


(2,963,195
)


(3,938,378
)


(1,587,094
)Transfers from nonaccretable


17,158,157



2,883,125



1,912,245Net reductions relating to loans sold


(558,022
)


(93,020
)


(163,857
)Net reductions relating to loans repurchased






(34,164
)


(54,782
)Other activity


(1,372
)


114,702



(88,491
)Balance, end of period

$
26,507,403


$
12,842,755


$
11,360,617Nonaccretable
    DiscountBalance, beginning of period

$
60,531,503


$
23,981,013


$
New acquisitions


88,011,140



46,883,365



26,671,609Transfers to accretable


(17,158,157
)


(2,883,125
)


(1,912,245
)Net reductions relating to loans sold


(227,821
)


(85,881
)


(71,047
)Net reductions relating to loans repurchased


(1,182,727
)


(284,999
)


(47,133
)Net reductions relating to loans charged off


(22,484,795
)


(3,319,554
)


(159,436
)Loans transferred to OREO, other


(5,347,263
)


(3,759,316
)


(500,735
)Balance, end of period

$
102,141,880


$
60,531,503


$
23,981,013   SOP 03-3 SOP 03-3 SOP 03-3
   F-18




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    BUILDING,
    FURNITURE AND EQUIPMENT    2007


2006Building and improvements

$
2,309,954


$
2,988,787Furniture and equipment


3,605,390



4,695,6235,915,344



7,684,410Less accumulated depreciation


(2,552,038
)


(3,968,502
)$
3,363,306


$
3,715,908   5.
    NOTES PAYABLE      In Accordance with the


Under the Terms of CreditTerms of the Forbearance


Agreements ExcludedAgreements Effective


from theDecember 28, 2007


Forbearance AgreementsFHLB 30-day
    LIBOR advance rate plus 2.35%

$



$
18,409,572FHLB 30-day
    LIBOR advance rate plus 2.50%






70,962,844LIBOR plus 2.25%


1,000,000,000



LIBOR plus 2.75%


414,397,747



10.00% (fixed)


125,000,000



$
1,539,397,747


$
89,372,416       2008

$
63,879,3792009


1,564,890,784$
1,628,770,163  F-19




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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.      Loan 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-20




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   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)(1)

Applicable Interest RateImmediately after restructuring

$
1.63 billion



7.49
%Immediately prior to restructuring

$
1.93 billion



7.71
%     (1)
    
    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); F-21




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    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;
    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. F-22




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Servicing.
  Security.
  Master
    Credit Facilities  Term Loans
    General. 30-day
    Interest Rates and Fees. 30-day
 F-23




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  30-day
  For Loans FundedPrior to July 1,

On or After July 1,2005

2005If the
    30-day
    advance rate was

the applicable margin was

the applicable margin wasLess than 2.26%

350 basis points

300 basis points2.26 to 4.50%

325 basis points

275 basis pointsGreater than 4.50%

300 basis points

250 basis points   Elimination
    of Success Fees
      August
    2006 Modifications to Huntington National Bank Financing
    Arrangements
    December
    2006 Modifications to Huntington National Bank Financing
    Arrangements
  30-day 30-day
  If the
    30-day
    advance rate was

the applicable margin wasLess than 2.26%

300 basis points2.26 to 4.50%

260 basis pointsGreater than 4.50%

235 basis points  F-24




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  30-day
  If the
    30-day
    advance rate was

the applicable margin wasLess than 2.26%

300 basis points2.26 to 4.50%

225 basis pointsGreater than 4.50%

200 basis points   30-day
  For Loans FundedPrior to November 15, 2006

On or After November 15, 2006Purchase of First

Tribeca Originated Loans/Mortgages

Second Mortgage PurchasesIf the
    30-day
    advance rate was

the applicable margin was

the applicable margin was

the applicable margin wasLess than 2.26%

300 basis points

300 basis points

300 basis points2.26 to 4.50%

275 basis points

225 basis points

260 basis pointsGreater than 4.50%

250 basis points

200 basis points

235 basis points     Principal; Prepayments; Termination of
    Commitments.
    Covenants; Events of Default.
  Security.
 F-25




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Bank
    of Scotland Term Loan
  30-day
  If the
    30-day
    advance rate is

the applicable margin isLess than 2.26%

300 basis points2.26 to 4.50%

275 basis pointsGreater than 4.50%

250 basis points         6.
    FINANCING
    AGREEMENTS   F-26




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Warehousing
    Credit and Security Agreement
      Flow
    Warehousing Credit and Security Agreement
        Other
    Credit Facilities
   F-27




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    INCOME
    TAXES    2007


2006


2005Current provision:Federal

$
(4,432,111
)

$
(4,302,164
)

$
4,473,969State and local


129,092



105,650



1,266,541(4,303,019
)


(4,196,514
)


5,740,510Deferred provision:Federal


2,863,018



2,644,845



633,188State and local


248,958



223,168



199,0033,111,976



2,868,013



832,191(Benefit)/provision

$
(1,191,043
)

$
(1,328,501
)

$
6,572,701     2007


2006


2005Tax determined by applying U.S. statutory rate to income

$
(3,342,216
)

$
(1,050,443
)

$
5,054,517Increase in taxes resulting from:State and local taxes, net of Federal benefit


(3,189,085
)


(338,026
)


1,465,544Increase in valuation allowance


4,097,377







Change in federal tax estimate


1,189,364







Meals and entertainment


53,517



59,968



52,640$
(1,191,043
)

$
(1,328,501
)

$
6,572,701  F-28




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Deferred tax liabilities:Purchase discount

$



$
2,714,886Deferred loan costs


3,071,877



2,948,508Restricted stock


154,763



338,615Loans to subsidiary companies


6,629,226



Other real estate owned


5,466,208



Prepaid expenses, other assets


1,711,255



Other


216,479



217,922Deferred tax liabilities

$
17,249,808


$
6,219,931Deferred tax assets:Loan basis

$
8,699,723


$
Acquisition costs


941,923



1,179,281State net operating loss carryforwards


4,217,431



612,045Deferred costs


5,671,325



Federal net operating loss carryforwards


558,491



Other


714,785



773,122Deferred tax assets

$
20,803,678


$
2,564,448Valuation allowance


(4,097,377
)


Net deferred tax liability

$
543,507


$
3,655,483       8.
    STOCK-BASED
    COMPENSATION     F-29




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Risk-free interest rate


5
%


4
%


4
%Weighted average volatility


95
%


48
%


109
%Expected term (years)


6



6



6     2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageShares


Price


Shares


Price


Shares


PriceOutstanding options, beginning


355,000


$
3.38



667,500


$
2.88



811,000


$
1.04Options granted


15,000


$
4.98



15,000


$
7.73



106,500


$
13.57Options cancelled





$




(42,500
)

$
12.32



(29,000
)

$
5.34Options exercised





$




(285,000
)

$
1.11



(221,000
)

$
1.02Outstanding options, end


370,000


$
3.44



355,000


$
3.38



667,500


$
2.88      F-30




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Number


NumberOutstanding


ExercisableRange of exercise price of options:$0.75


234,000



234,000$0.85


10,000



10,000$1.04


6,000



6,000$2.25


15,000



15,000$3.55


15,000



15,000$4.98


15,000



15,000$7.73


15,000



15,000$12.85


21,000



21,000$13.75


39,000



39,000TOTAL OPTIONS


370,000



370,000Weighted average exercise price

$
3.44


$
3.44       2006
    Stock Incentive Plan
    
    Restricted Stock Restricted shares of
    the Companys common stock have been awarded to certain
    executives. The stock awards are subject to restrictions on
    transferability and other restrictions, and step vest over a
    three year period. F-31




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageRestricted Stock

Shares


Fair Value


Shares


Fair Value


Shares


Fair ValueOutstanding unvested grants, beginning


95,000


$
8.36



27,000


$
12.92



90,000


$
11.00Granted





$




122,000


$
7.82



31,000


$
12.92Vested


(30,000
)

$
8.63



(46,000
)

$
8.79



(54,000
)

$
11.14Canceled





$




(8,000
)

$
13.00



(40,000
)

$
11.00Outstanding unvested grants, end


65,000


$
8.24



95,000


$
8.36



27,000


$
12.92       9.
    SEGMENTS     F-32




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  PORTFOLIO
    ASSET ACQUISITION AND RESOLUTION
  2007


2006


2005REVENUES:Interest income

$
115,545,302


$
100,637,297


$
74,715,325Purchase discount earned


4,825,085



8,687,694



10,754,979Gain on sale of notes receivable


32,417



163,911



1,310,887Gain on sale of other real estate owned


357,306



1,744,833



1,724,170Other


5,230,508



5,644,614



5,528,263Total revenues


125,990,618



116,878,349



94,033,624OPERATING EXPENSES:Interest expense


104,833,997



79,112,779



51,602,872Collection, general and administrative


29,819,621



32,568,097



25,824,139Provision for loan losses


248,371,548



9,545,885



3,740,738Amortization of deferred financing costs


1,680,453



2,598,704



2,982,031Depreciation


908,829



872,940



856,234Total operating expenses


385,614,448



124,698,405



85,006,014(LOSS)/INCOME BEFORE EXTRAORDINARY ITEM

$
(259,623,830
)

$
(7,820,056
)

$
9,027,610Gain on debt forgiveness


284,246,320







(LOSS)/INCOME BEFORE PROVISION FOR INCOME TAXES


24,622,490


$
(7,820,056
)

$
9,027,610  F-33




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  MORTGAGE
    BANKING
  2007


2006


2005REVENUES:Interest income

$
40,377,472


$
41,219,970


$
24,331,218Purchase discount earned


131,729



237,144



459,742Gain on sale of notes receivable


(1,299
)






(Loss)/gain on sale of originated loans


(305,446
)


1,871,633



1,276,566Gain on sale of other real estate owned


390,781



173,989



34,181Other


2,678,334



3,372,000



1,263,883Total revenues


43,271,571



46,874,736



27,365,590OPERATING EXPENSES:Interest expense


38,419,580



33,960,553



16,727,093Collection, general and administrative


11,621,591



5,718,053



2,875,994Provision for loan losses


26,261,314



204,508



1,004,388Amortization of deferred financing costs


917,403



1,970,040



1,123,187Depreciation


504,220



291,065



221,062Total operating expenses


77,724,108



42,144,219



21,951,724(LOSS)/INCOME BEFORE PROVISION FOR INCOME TAXES

$
(34,452,537
)

$
4,730,517


$
5,413,866OTHER SELECTED SEGMENT RESULTSCONSOLIDATED ASSETS:Portfolio asset acquisition and resolution

$
1,149,317,726


$
1,207,914,463


$
927,465,879Mortgage banking


543,195,476



460,443,536



405,326,813Consolidated assets

$
1,692,513,202


$
1,668,357,999


$
1,332,792,692TOTAL ADDITIONS TO BUILDING, FURNITURE AND EQUIPMENT:Portfolio asset acquisition and resolution

$
274,527


$
539,180


$
3,291,282Mortgage banking


785,920



311,252



525,053Consolidated additions to building, furniture and equipment

$
1,060,447


$
850,432


$
3,816,335CONSOLIDATED REVENUE:Portfolio asset acquisition and resolution

$
125,990,618


$
116,878,349


$
94,033,624Mortgage banking


43,271,571



46,874,736



27,365,590Consolidated revenue

$
169,262,189


$
163,753,085


$
121,399,214CONSOLIDATED NET (LOSS)/INCOME:Portfolio asset acquisition and resolution

$
12,234,119


$
(4,457,433
)

$
4,889,417Mortgage banking


(20,873,123
)


2,696,395



2,979,358Consolidated net (loss)/income

$
(8,639,004
)

$
(1,761,038
)

$
7,868,775  F-34




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    CERTAIN
    CONCENTRATIONS    December 31,Location

2007


2006California


13.76
%


12.61
%New York


10.98
%


11.01
%New Jersey


9.68
%


9.43
%Florida


8.71
%


6.92
%Texas


4.67
%


4.82
%Pennsylvania


4.53
%


4.54
%Ohio


3.40
%


4.31
%Illinois


3.27
%


3.71
%Maryland


3.15
%


3.00
%Michigan


2.99
%


3.15
%All Others


34.86
%


36.50
%100.00
%


100.00
%       Financing
  11.
    COMMITMENTS
    AND CONTINGENCIES  Operating Leases
 F-35




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended

Amount2008

$
1,583,0922009


1,581,3452010


1,576,3312011


1,612,1972012


1,597,107Thereafter


1,597,107$
9,547,179     Year Ended

Amount2008

$
208,1632009


127,1092010


21,774$
357,046   Capital Leases
    Year Ended

Amount2008

$
220,6352009


220,6352010


128,671569,941Less amounts representing interest


(72,912
)$
497,029   Legal Actions
   F-36




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    RELATED
    PARTY TRANSACTIONS               F-37




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    QUARTERLY
    FINANCIAL INFORMATION (Unaudited)  Consolidated
    Statements of Income
  2007 QuartersFourth


Third


Second


FirstRevenues:Interest income

$
34,932,469


$
38,692,713


$
43,393,657


$
38,903,935Purchase discount earned


1,067,291



1,109,316



1,366,649



1,413,558Gain on sale of notes receivable










31,118



Gain on sale of originated loans


84,064



(590,243
)


197,694



3,039Gain on sale of other real estate owned


118,627



390,653



117,632



121,175Prepayment penalties and other income


1,822,942



1,961,107



2,024,813



2,099,980Total revenues


38,025,393



41,563,546



47,131,563



42,541,687Operating Expenses:Interest expense


37,152,506



39,132,464



35,408,803



31,559,804Collection, general and administrative


11,522,869



10,255,570



10,769,328



8,893,445Provision for loan losses


1,920,969



262,715,207



5,663,222



4,333,464Amortization of deferred financing costs


317,629



526,729



977,663



775,835Depreciation


331,210



364,484



369,809



347,546Total expenses


51,245,183



312,994,454



53,188,825



45,910,094(Loss)/income before extraordinary item






(271,430,9089
)


(6,057,262
)


(3,368,407
)Gain on forgiveness of debt


284,246,320











Income/(loss) before provision for income taxes


271,026,530



(271,430,908
)


(6,057,262
)


(3,368,407
)Income tax provision/(benefit)


111,207,807



(108,510,170
)


(2,473,949
)


(1,414,731
)Net income/(loss)

$
159,818,723


$
(162,920,738
)

$
(3,583,313
)

$
(1,953,676
)Net income/(loss) per common share:Basic

$
20.10


$
(20.51
)

$
(0.45
)

$
(0.25
)Diluted

$
20.10


$
(20.51
)

$
(0.45
)

$
(0.25
)   F-38




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##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006 QuartersFourth


Third


Second


FirstRevenues:Interest income

$
37,286,388


$
35,855,704


$
35,272,864


$
33,442,311Purchase discount earned


2,061,454



2,660,711



2,223,710



1,978,963Gain on sale of notes receivable






94,862







69,049Gain on sale of originated loans


185,113



1,349,724



170,924



165,872Gain on sale of other real estate owned


606,483



70,056



440,741



801,542Prepayment penalties and other income


2,040,694



2,435,600



2,335,115



2,205,205Total revenues


42,180,132



42,466,657



40,443,354



38,662,942Operating Expenses:Interest expense


31,189,160



29,494,108



27,898,497



24,491,567Collection, general and administrative


9,484,646



10,420,831



10,432,793



7,947,880Provision for loan losses


3,009,952



1,709,165



3,162,146



1,869,130Amortization of deferred financing costs


979,524



1,550,790



1,130,415



908,015Depreciation


314,071



286,616



251,613



311,705Total expenses


44,977,353



43,461,510



42,875,464



35,528,297(Loss)/income before provision for income taxes


(2,797,221
)


(994,853
)


(2,432,110
)


3,134,645(Benefit)/provision for income taxes


(1,202,802
)


(430,898
)


(1,042,698
)


1,347,897Net (loss)/income

$
(1,594,419
)

$
(563,955
)

$
(1,389,412
)

$
1,786,748Net income per common share:Basic

$
(0.20
)

$
(0.07
)

$
(0.18
)

$
0.24Diluted

$
(0.20
)

$
(0.07
)

$
(0.18
)

$
0.22   14.
    SUBSEQUENT
    EVENTS     F-39




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  non-amortizing,
          
    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.   F-40




---



##### Table of Contents



FRANKLIN
    CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     F-41