##### 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, 2008o

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 HOLDING
    CORPORATION
 (Exact name of Registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

26-3104776(IRS Employer
    Identification 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 filero  Non-accelerated
    filer
    (Do not check if a smaller reporting company)

o  Accelerated
    filer 
        þ  Smaller
    reporting Company   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





FRANKLIN
    CREDIT HOLDING CORPORATION
  FORM 10-K
    December 31, 2008
  INDEX
   
 PagePART IItem 1.


Business


3Item 1A.


Risk Factors


32Item 1B.


Unresolved Staff Comments


46Item 2.


Properties


46Item 3.


Legal Proceedings


47Item 4.


Submission of Matters to a Vote of Security
    Holders


48PART IIItem 5.


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


49Item 6.


Selected Financial Data


49Item 7.


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


50Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


76Item 8.


Financial Statements and Supplementary Data


77Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


77Item 9A(T).


Controls and Procedures


78Item 9B.


Other Information


78PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


79Item 11.


Executive Compensation


79Item 12.


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


79Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


79Item 14.


Principal Accountant Fees and Services


79PART IVItem 15.


Exhibits and Financial Statement Schedules


80EX-10.89: FIRST AMENDMENT TO LOAN SERVICING 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: CERTIFICATION




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Form 10-K
  Overview
  Recent
    Developments
  March 2009 Restructuring.
      
    entry into a market-rate servicing agreement with the Bank
    enabling FCMC, which houses the Companys servicing
    business, to generate fee income from servicing the Portfolio;
    release of 30% of the equity in FCMC from the Companys
    pledges to the Bank, with the possibility of release of up to an
    additional 50% based on cash collections from servicing of the
    Portfolio over the next five years;
    entry into an amended $13.5 million credit facility with
    the Bank, including a $5 million draw facility; a
    $2 million revolving facility; and, a $6.5 million
    letter of credit facility to support various servicer
    licenses; and
    enabling of FCMC to seek additional third-party sub-servicing
    contracts in order to capitalize on its servicing and collection
    expertise and build its servicing revenue stream.   3




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
    83% of the Portfolio was removed from the Companys balance
    sheet and replaced by common shares and approximately
    $482 million of preferred shares in a Huntington National
    Bank REIT (together, the REIT Securities) having, in
    the aggregate, a value intended to approximate the fair market
    value of the portfolio transferred to the Bank as of
    March 31, 2009. The preferred shares have an annual
    cumulative dividend of 9%;
    principal and interest payments on approximately
    $1.4 billion of the legacy debt owed to the Bank and its
    participant banks are only due and payable to the extent of
    (a) dividends declared and paid on the REIT shares and 70%,
    or potentially less with a maximum reduction to 20%, of the
    amounts distributed by FCMC to Franklin Holding;
    (b) distributions made by the trust on the participant
    banks trust certificates from collections on the
    collateral; (c) any proceeds received from any other
    collateral;
    and/or
    (d) upon maturity or default; and
    the Banks recourse against FCMC and the Company under the
    legacy credit agreement is limited to 20% to 70% of FCMCs
    common equity, based on amounts collected over time by
    FCMCs servicing of the Portfolio. The Bank also will be
    entitled to receive 70% of the income distributions and
    dividends from FCMC, which may be reduced to 20% based on
    amounts collected from servicing of the portfolio, which will be
    used to make interest
    and/or
    principal payments on the debt owed to the Bank.        non-amortizing
  Amendment to Bosco Servicing
    Agreement.
 4




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Going
    Concern Uncertainty
    Operating
    Losses and Stockholders Deficit
   5




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##### Table of Contents



Licenses
    to Service Loans and December 2008 Corporate
    Reorganization
       6




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##### Table of Contents



Delisting 
    The Nasdaq Capital Market
   7




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##### Table of Contents



Franklins
    Business
           8




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##### Table of Contents



Form 10-K
  Form 10-K
  Loan
    Servicing
   9




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##### Table of Contents



Due
    Diligence Services
    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
    and/or
 10




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##### Table of Contents



Financing
          Corporate
    History
    December
    2008 Corporate Reorganization
   11




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##### Table of Contents




    result in various licensing authorities evaluating FCMCs
    servicing platforms compliance with applicable license
    requirements (including net worth requirements) without
    reference to the loan portfolios and related indebtedness of the
    other entities in the reorganized corporate structure of the
    Company, and accordingly, with positive net worth; and,
    enhance the Companys flexibility to potentially grow its
    servicing business and take advantage of other corporate
    restructuring opportunities should they become available.      Holding
    Company Structure
         12




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##### Table of Contents



Separation
    of Serving Platform from Loan Portfolios
    
    assigned legal record ownership of all loans in the
    Companys portfolio held directly by FCMC to Franklin
    Credit Trust Series I, a newly formed Delaware
    Business Trust (the Franklin Trust), of which
    Deutsche Bank National Trust Company serves as Certificate
    Trustee, Deutsche Bank Trust Company Delaware serves as
    Delaware Trustee and solely for purposes of perfecting its
    security interest, Huntington is the record certificate holder;
    assigned legal record ownership of all loans in the
    Companys portfolio held directly by Tribeca to Tribeca
    Lending Trust Series I, a newly formed Delaware
    Business Trust (the Tribeca Trust, and together with
    the Franklin Trust, the Trusts), of which Deutsche
    Bank National Trust Company serves as Certificate Trustee,
    Deutsche Bank Trust Company Delaware serves as Delaware
    Trustee and solely for purposes of perfecting its security
    interest, Huntington is the record certificate holder;
    transferred to Franklin Credit Asset Corporation, a newly formed
    Delaware corporation and direct subsidiary of Franklin Holding
    (Franklin Asset) all of FCMCs equity interests
    in any subsidiary of FCMC (other than Tribeca) that directly or
    indirectly holds beneficial interests in any of the loans in the
    Companys portfolio and are the borrowers under the
    Companys lending agreements with Huntington (together with
    Tribeca, the Borrowers);
    transferred to Franklin Holding all of FCMCs equity
    interests in Tribeca; and,
    transferred to Franklin Holding all of FCMCs membership
    interests in Franklin Credit Loan Servicing, LLC (Franklin
    Servicing LLC).    Servicing
   13




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##### Table of Contents



Loan Boarding and Administration.
    Customer Service. and/or
  Collections.
  Loss Mitigation.
  
    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; 14




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##### Table of Contents




    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;
    deeds-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;
    assumptions, when the borrower wishes to relinquish
    responsibility to a third party and the prospective borrower
    demonstrates the ability to repay the loan;
    subordinations, 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
  Recovery. and/or
  Quality Control.
 15




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##### Table of Contents



Training.
  Competition for Servicing Business.
  Portfolio
    Characteristics
  Overall
    Portfolio
    Unpaid


Percentage of TotalProperty Types

Principal Balance


Principal BalanceResidential 1-4 family

$
1,268,478,890



82.41
%Condos, co-ops, PUD dwellings


193,149,884



12.55
%Manufactured and mobile homes


15,135,861



0.98
%Multi-family


443,023



0.03
%Secured, property type
    unknown(1)


18,464,780



1.20
%Commercial


1,920,922



0.12
%Unsecured
    loans(2)


41,678,994



2.71
%Total

$
1,539,272,354



100.00
%     (1)
    
    The loans included in this category
    are principally small balance (less than $10,000) second-lien
    loans acquired, and are collateralized by residential real
    estate.(2)
    
    The loans included in this category
    are principally second-lien loans where the Company is aware
    that residential real estate collateral has been foreclosed by
    the first-lien holder. 16




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##### Table of Contents



Geographic Dispersion.
  Unpaid


Percentage of TotalLocation

Principal Balance


Principal BalanceCalifornia

$
226,583,453



14.72
%New York


172,713,267



11.22
%New Jersey


145,363,612



9.44
%Florida


136,181,054



8.85
%Pennsylvania


69,705,413



4.53
%Texas


69,656,734



4.53
%Maryland


50,994,311



3.31
%Ohio


50,792,987



3.30
%Illinois


49,072,979



3.19
%Michigan


43,731,150



2.84
%All Others


524,477,394



34.07
%Total

$
1,539,272,354



100.00
%   Asset
    Quality
  Delinquency.
   17




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##### Table of Contents



December 31, 2008Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Performing  Current

0 - 30 days

$
373,712,487



24.28
%

$
419,653,369



27.26
%Delinquent

31 - 60 days


30,511,251



1.98
%


25,910,879



1.69
%61 - 90 days


4,302,736



0.28
%


21,390,383



1.39
%90+ days


128,904,056



8.38
%


70,475,899



4.58
%Modified Loans

0 - 30 days


262,156,611



17.03
%


299,215,550



19.44
%Delinquent

31 - 60 days


46,097,510



2.99
%


32,572,746



2.12
%61 - 90 days


1,195,906



0.08
%


15,542,772



1.01
%90+ days


78,911,624



5.13
%


41,030,583



2.66
%Bankruptcy

0 - 30 days


26,527,458



1.72
%


62,020,559



4.03
%Delinquent

31 - 60 days


5,929,387



0.38
%


10,264,968



0.67
%61 - 90 days


1,644,545



0.11
%


4,623,655



0.30
%90+ days


90,762,522



5.90
%


47,954,730



3.11
%Foreclosure

0 - 30 days


2,575,557



0.16
%


19,594,271



1.27
%Delinquent

31 - 60 days


743,187



0.05
%


7,639,599



0.50
%61 - 90 days


123,808



0.01
%


7,248,534



0.47
%90+ days


485,173,709



31.52
%


454,133,857



29.50
%Total

$
1,539,272,354



100.00
%

$
1,539,272,354



100.00
%All current loans

0 - 30 days

$
664,972,113



43.20
%

$
800,483,749



52.00
%      18




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##### Table of Contents



December 31, 2007Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Performing - Current

0 - 30 days

$
951,861,876



49.48
%

$
1,110,650,415



57.73
%Delinquent

31 - 60 days


123,519,019



6.42
%


95,368,280



4.96
%61 - 90 days


8,853,424



0.46
%


34,790,945



1.81
%90+ days


285,242,612



14.83
%


128,667,291



6.69
%Modified Loans

0 - 30 days


7,982,183



0.41
%


10,146,896



0.52
%Delinquent

31 - 60 days


1,694,772



0.09
%


393,498



0.02
%61 - 90 days


77,350



0.00
%






90+ days


794,889



0.04
%


8,800



0.00
%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
%All current loans

0 - 30 days

$
991,220,440



51.52
%

$
1,241,417,483



64.53
%    19




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##### Table of Contents



Notes
    Receivable Portfolio
    2008


2007Performing loans

$
528,953,209


$
1,087,987,060Allowance for loan losses


130,724,698



129,967,195Nonaccretable discount*


25,277,808



61,590,526Total performing loans, net of allowance for loan losses and
    nonaccretable discount


372,950,703



896,429,339Impaired loans


615,159,200



330,212,508Allowance for loan losses


340,368,461



100,842,743Nonaccretable discount*


72,325,558



40,551,354Total impaired loans, net of allowance for loan losses and
    nonaccretable discount


202,465,181



188,818,411Total notes receivable, net of allowance for loan losses and
    nonaccretable discount


575,415,884



1,085,247,750Accretable discount*


24,860,752



26,507,403Total Notes Receivable, net of allowance for loan losses and
    accretable/nonaccretable discount

$
550,555,132


$
1,058,740,347     *
    
    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. 20




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##### Table of Contents



2008


2007Performing Loans:Fixed-rate Performing Loans

$
325,799,144


$
765,622,654Adjustable-rate Performing Loans


72,429,367



192,397,211Total Performing Loans

$
398,228,511


$
958,019,865Impaired Loans:Fixed-rate Impaired Loans

$
162,504,488


$
143,666,475Adjustable-rate Impaired Loans


112,286,251



85,703,290Total Impaired Loans

$
274,790,739


$
229,369,765Total Notes

$
673,019,250


$
1,187,389,630Accretable Discount

$
24,860,752


$
26,507,403Nonaccretable Discount

$
97,603,366


$
102,141,880Total Notes Receivable, net of allowance for loan losses,
    excluding loans not boarded onto servicing systems

$
550,555,132


$
1,058,740,347     Lien Position.
  December 31, 2008


December 31, 2007Principal


Percentage of Total


Principal


Percentage of TotalLien Position

Balance


Principal Balance


Balance


Principal Balance1st Liens

$
390,020,158



34.09
%

$
497,433,756



35.08
%2nd Liens


754,092,251



65.91
%


920,765,812



64.92
%Total

$
1,144,112,409



100.00
%

$
1,418,199,568



100.00
%   Loan
    Acquisitions
    2008


2007Number of loans






6,561Aggregate unpaid principal balance at acquisition

$



$
528,670,757Purchase price

$



$
440,678,212Purchase price percentage






83
%Percentage of
    1st liens






49
%Percentage of
    2nd liens






51
%  21




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##### Table of Contents



Notes
    Receivable Dispositions
    2008


2007Sale of Performing LoansAggregate unpaid principal balance

$



$
22,255,982Gain on sale

$



$
31,118Sale of Non-Performing LoansAggregate unpaid principal balance

$



$
Gain on sale

$



$
Total gain on sale

$



$
31,118   Tribecas
    Loan Originations
    2008


2007Number of loans originated






1,224Original principal balance

$



$
291,616,627Average loan amount

$



$
238,249Originated as fixed

$



$
31,718,090Originated as
    ARM(1)

$



$
259,898,537Number of loans sold






150Aggregate face value

$



$
37,477,843(Loss) on sale

$



$
(305,446
)(2)(Loss) on sale percentage






(0.82
)%     (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.  Property Types of Originated Loans Held for
    Investment.
 22




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##### Table of Contents



December 31, 2008


December 31, 2007Unpaid


Percentage of Total


Unpaid


Percentage of TotalProperty Types

Principal Balance


Principal Balance


Principal Balance


Principal BalanceResidential 1-4 family

$
366,986,696



92.87
%

$
471,194,863



93.18
%Condos, co-ops, PUD dwellings


26,235,944



6.64
%


31,629,257



6.25
%Commercial


1,213,370



0.31
%


2,604,862



0.52
%Other


723,935



0.18
%


252,026



0.05
%Total

$
395,159,945
*


100.00
%

$
505,681,008
*


100.00
%     *
    
    UPB before net deferred fees and
    allowance for loan losses.    Geographic Dispersion of Originated Loans Held for
    Investment.
  Loans Held for Investmentat December 31, 2008Principal


Percentage of TotalLocation

Balance


Principal BalanceNew York

$
123,880,052



31.35
%New Jersey


110,711,384



28.02
%Pennsylvania


36,953,589



9.35
%Florida


21,861,359



5.53
%Maryland


19,009,954



4.81
%Massachusetts


16,962,889



4.29
%Connecticut


14,686,403



3.72
%Virginia


13,589,808



3.44
%California


9,479,743



2.40
%North Carolina


4,316,450



1.09
%All Others


23,708,314



6.00
%Total

$
395,159,945
*


100.00
%     *
    
    UPB before net deferred fees and
    allowance for loan losses.  Delinquency. and/or
 23




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##### Table of Contents



December 31, 2008Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Performing  Current

0 - 30 days

$
36,507,373



9.24
%

$
44,588,755



11.28
%Delinquent

31 - 60 days


3,581,801



0.91
%


3,481,770



0.88
%61 - 90 days










3,502,244



0.89
%90+ days


15,384,265



3.89
%


3,900,670



0.99
%Modified Loans

0 - 30 days


94,745,106



23.98
%


114,563,000



28.99
%Delinquent

31 - 60 days


22,270,155



5.64
%


13,869,945



3.51
%61 - 90 days










6,542,880



1.66
%90+ days


38,332,095



9.70
%


20,371,531



5.16
%Bankruptcy

0 - 30 days


1,059,398



0.27
%


6,454,645



1.63
%Delinquent

31 - 60 days


35,838



0.01
%


3,258,305



0.83
%61 - 90 days










1,620,981



0.41
%90+ days


25,146,648



6.36
%


14,907,953



3.77
%Foreclosure

0 - 30 days


558,299



0.14
%


7,335,438



1.85
%Delinquent

31 - 60 days


128,777



0.03
%


3,750,505



0.95
%61 - 90 days










3,741,529



0.95
%90+ days


157,410,190



39.83
%


143,269,794



36.25
%Total

$
395,159,945



100.00
%

$
395,159,945



100.00
%All current loans

0 - 30 days

$
132,870,176



33.62
%

$
172,941,838



43.77
%  24




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##### Table of Contents



December 31, 2007Contractual Delinquency


Recency DelinquencyDays Past Due

Amount


%


Amount


%Performing  Current

0 - 30 days

$
200,705,800



39.69
%

$
248,559,560



49.15
%Delinquent

31 - 60 days


44,601,018



8.82
%


31,105,569



6.15
%61 - 90 days


1,065,746



0.21
%


4,859,698



0.96
%90+ days


44,465,074



8.79
%


6,312,811



1.25
%Modified Loans

0 - 30 days


158,960



0.03
%


283,721



0.06
%Delinquent

31 - 60 days


124,761



0.03
%






61 - 90 days














90+ days














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
%All current loans

0 - 30 days

$
202,367,860



40.02
%

$
280,021,783



55.38
%    25




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##### Table of Contents



Other
    Real Estate Owned
    2008


2007Other real estate owned

$
60,748,390


$
58,838,831OREO as a percentage of total assets


5.94
%


3.48
%OREO sold

$
41,609,095


$
26,634,744Net gain on sale

$
2,213,998


$
748,087   Government
    Regulation
    
    the Equal Credit Opportunity Act and Regulation B;
    the Truth in Lending Act and Regulation Z;
    the Home Ownership and Equity Protection Act;
    the Real Estate Settlement Procedures Act, and Regulation X;
    the Fair Credit Reporting Act;
    the Fair Debt Collection Practices Act;
    the Home Mortgage Disclosure Act, and Regulation C;
    the Fair Housing Act;
    the Telemarketing and Consumer Fraud and Abuse Prevention Act;
    the Telephone Consumer Protection Act;
    the Gramm-Leach-Bliley Act;
    the Servicemembers Civil Relief Act;
    the Fair and Accurate Credit Transactions Act; 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; 26




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##### Table of Contents




    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 or
    seller of mortgage loans as well as the entities that purchase
    our mortgage loans.    
    civil and criminal liability, including potential monetary
    penalties;
    loss of servicing licenses or approved status required for
    continued business operations;
    demands for indemnification or loan repurchases from purchasers
    of our loans;
    legal defenses causing delay and expense;
    adverse effects on our ability, as servicer, to enforce loans;
    the borrower having the right to rescind or cancel the loan
    transaction;
    adverse publicity;
    individual and class action lawsuits;
    administrative enforcement actions;
    damage to our reputation in the industry; or
    inability to obtain credit to fund our operations.    New
    Areas of Regulation
   27




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and/or
   28




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29




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(2001-1)
   30




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Compliance,
    Quality Control and Quality Assurance
    Privacy
    Fair
    Credit Reporting Act
      Home
    Mortgage Disclosure Act
     31




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Telephone
    Consumer Protection Act and Telemarketing Consumer Fraud and
    Abuse Prevention Act
    Environmental
    Matters
    Employees
      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.
  loan-to-value
 32




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Our
    credit facilities require us to observe certain covenants, and
    our failure to satisfy such covenants could render us
    insolvent.
        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.
   33




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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 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.
   34




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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
     35




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A
    significant amount of the mortgage loans that we originated 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.
  loan-to-value
  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.
   36




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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.
    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.
   37




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An
    interruption in or breach of our information systems may result
    in lost business and increased expenses.
    We are
    exposed to the risk of environmental liabilities with respect to
    properties to which we take title.
    A loss
    of our Chairman 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.
   38




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##### Table of Contents



We may
    become subject to liability and incur increased expenditures as
    a result of our reassessment of our allowance for loan
    losses.
    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,
    service or finance non-prime residential mortgage loans, which
    could adversely impact our earnings.
     39




---



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40




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##### 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.
      
    civil and criminal liability, including potential monetary
    penalties;
    loss of servicing licenses or approved status required for
    continued business operations;
    demands for indemnification or loan repurchases from purchasers
    of our loans;
    legal defenses causing delay and expense;
    adverse effects on our ability, as servicer, to enforce loans;
    the 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.   41




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##### Table of Contents



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.
    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.
       42




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We are
    subject to significant legal and reputational risks and expenses
    under federal and state laws concerning privacy, use and
    security of customer information.
    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.
       43




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##### 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
    have been 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 has been adversely
    affected.
     44




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##### 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;
    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. 45




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##### Table of Contents



Compliance
    with the rules of the market in which our common stock trades
    and proposed and recently enacted changes in securities laws and
    regulations are likely to increase our costs.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES  th
  th th th month-to-month
  th month-to-month
  th
 46




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##### Table of Contents



th
  ITEM 3.
    LEGAL
    PROCEEDINGS    Franklin
    Credit Management Corporation v. WMC Mortgage LLC
  Franklin Credit Management Corporation v. WMC
    Mortgage LLC, successor to WMC Mortgage Corp.
  Franklin Credit Management Corporation v.
    WMC Mortgage LLC, successor to WMC Mortgage Corp.
    Franklin
    Credit Management Corporation v. Decision One Mortgage
    Company, LLC and HSBC Finance Corporation
  Franklin Credit Management
    Corporation v. Decision One Mortgage Company, LLC and HSBC
    Finance Corporation
 47




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##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   48




---



##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market Information. over-the-counter
    High


LowYear Ended December 31, 2007:First Quarter

$
5.91


$
4.22Second Quarter


5.20



4.25Third Quarter


5.20



1.44Fourth Quarter


4.98



0.25Year Ended December 31, 2008:First Quarter


1.10



0.60Second Quarter


1.19



0.63Third Quarter


0.86



0.27Fourth Quarter


1.25



0.35   Holders.
  Dividend Policy.
  Securities Authorized for Issuance Under Compensation
    Plans.
  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


592,000


$
2.74



158,000Equity compensation plans not approved by security holders










Total


592,000


$
2.74



158,000   Recent
    Sales of Unregistered Securities
    ITEM 6.
    SELECTED
    FINANCIAL DATA   49




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##### Table of Contents



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.
  Going
    Concern Uncertainty
    Executive
    Summary
   50




---



##### Table of Contents



Application
    of Critical Accounting Policies and Estimates
    Notes Receivable and Income Recognition
   51




---



##### Table of Contents



Discounts on Acquired Loans SOP 03-3,
      Allowance for Loan Losses
  Originated Loans Held for Investment
 52




---



##### Table of Contents



Other Real Estate Owned
  Derivatives Accounting
    for Derivative Instruments and Hedging Activities
       53




---



##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2008 Compared to Year Ended
    December 31, 2007
  Overview.
    Revenues.
     54




---



##### Table of Contents



Operating Expenses.
   55




---



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56




---



##### Table of Contents



Liquidity
    and Capital Resources
  General
        Short-term Investments.
  Cost of Funds.
 57




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##### Table of Contents



Under the Terms ofIn Accordance with the


Credit AgreementTerms of the Forbearance


Excluded from theAgreements


Forbearance AgreementsFHLB 30-day
    LIBOR advance rate plus 2.60%

$



$
16,556,134FHLB 30-day
    LIBOR advance rate plus 2.75%






24,380,952LIBOR plus 2.25%


865,832,436



LIBOR plus 2.75%


410,563,418



0.00% (fixed)*


125,000,000



$
1,401,395,854


$
40,937,086     *
    
    0% interest at least until maturity
    of the Forbearance Agreements in May 2009, or until all
    outstanding amounts under the Tranche A debt have been paid
    in full.    Cash
    Flow from Operating, Investing and Financing
    Activities
         58




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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. 59




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##### Table of Contents



Terms of the Restructured
    Indebtedness.
  ApplicableOutstanding


Interest


Required Monthly


Required MonthlyOutstanding


Principal


Margin Over


Principal


PrincipalPrincipal Amount 


Amount 


LIBOR


Amortization 


Amortization Franklin Credit


Tribeca


(basis points)


Franklin Credit


TribecaTranche A

$
600,000,000


$
400,000,000



225


$
5,400,000


$
3,600,000Tranche B

$
323,255,000


$
91,142,000



275


$
750,000


$
250,000Tranche C

$
125,000,000



N/A



N/A
(1)


N/A
(2)


N/ATranche D

$
1,033,000
(3)


N/A



250
(4)


N/A



N/AUnrestructured Debt

$
44,537,000


$
44,835,000



235-250


$
148,000


$
498,000     (1)
    
    The applicable interest rate is
    fixed at 10% per annum. Interest will be paid in kind during the
    term of the forbearance.(2)
    
    Tranche C requires no
    principal amortization. All principal is due at maturity.(3)
    
    Tranche D serves as a
    revolving credit line with a maximum availability of
    $5 million, and an additional $5 million which may be
    used for issuance of letters of credit.(4)
    
    Does not include a letter of credit
    facing fee of 0.125% per annum on the average daily undrawn
    amount of each issued and outstanding letter of credit.      Total OutstandingPrincipal Amount


Weighted Average(Franklin Credit and
    Tribeca)(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; 60




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##### Table of Contents




    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.    Servicing.
 61




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##### Table of Contents



Security.
  Gain on Debt Forgiveness.
  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.     62




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##### Table of Contents



August
    2008 Modification to Forbearance Agreements
    Unrestructured
    Debt
    December
    2008 Modification to Forbearance Agreements
    
    Franklin Asset became a borrower under the Companys
    lending agreements with Huntington;
    the Trusts became guarantors for the Borrowers
    indebtedness to Huntington;
    FCMC, Franklin Asset and the Trusts each pledged its assets,
    including any equity interests in any of the Borrowers, as
    security for the Borrowers indebtedness to Huntington;
    Franklin Servicing LLC agreed to service, if necessary, the
    Companys mortgage loans in selected states;
    the Company agreed to maintain in effect one or more interest
    rate hedge agreements in an aggregate notional principal amount
    of not less than $1 billion, or such lesser amount as
    Huntington in its sole discretion may approve;
    the Companys Tranche D facility was amended to
    provide for (i) a revolving credit facility and letter of
    credit facility in the aggregate outstanding amount of
    $10 million, with a sublimit of $5 million, and, 63




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##### Table of Contents



in addition, (ii) a separate letter of credit facility
    pursuant to which Huntington may issue letters of credit in its
    discretion, with a sublimit of $5.5 million;  
    Huntington agreed to waive the Companys breach of covenant
    to comply with all laws, rules and regulations to the extent
    such breach results from the Companys failure to satisfy a
    minimum net worth requirement; and,
    the covenant requiring FCMC and each of the Borrowers to
    maintain liquidity of at least $5 million was deleted.    
    Franklin Holding became a guarantor for the Borrowers
    indebtedness to Huntington; and,
    Franklin Holding pledged its assets, including any equity
    interests in any of the Borrowers, as security for the
    Borrowers indebtedness to Huntington.    Recent
    Development  March 2009 Restructuring
      non-amortizing non-amortizing
  Background.
 64




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##### Table of Contents




    a substantial and growing shortfall in cash collections from the
    Portfolio relative to the Companys debt service
    obligations owed to the Bank;
    a substantial and growing shortfall in the value of the
    Companys assets, relative to the amounts owed to the Bank
    under the facility agreements for the Companys outstanding
    debt with the Bank;
    concern by potential servicing customers and other
    constituencies over the continued viability of the Company in
    its current form, including the viability of FCMC, the
    Companys servicing platform, which the Company believes as
    of December 31, 2008 to be financially sound on a
    unpledged, stand alone basis;
    concern that the Bank was increasingly likely to:  
    cease granting necessary waivers and forbearances with respect
    to Company defaults under the Companys various credit
    facilities; and
    declare a default with respect to the credit facilities and
    foreclose on the assets of the Company, substantially all of
    which were pledged to the Bank, especially in light of
    communications from the Bank indicating that it was seeking
    greater and more direct control over the collection guidelines
    related to the assets in the Portfolio and may have needed to
    foreclose on the Portfolio if it were not able to consummate a
    transaction like the Restructuring in which it was able to gain
    control over the Portfolio while keeping the credit facilities
    outstanding. Such a foreclosure would have left no value for the
    Companys stockholders.    Executive Summary.
  
    in exchange for the transfer of that part of the Portfolio
    underlying the Bank Trust Certificates (as defined below),
    the Company received common membership interests and
    Class C preferred membership interests in the REIT having
    in the aggregate a value intended to approximate the fair market
    value of that portion of the Portfolio transferred to the Bank,
    which as of March 31, 2009 was approximately
    $481.5 million (the REIT Securities). The
    preferred membership interests have a liquidation value of
    $100,000 per unit and an annual cumulative dividend rate of 9%
    of such liquidation value. The REIT Securities replaced the
    above referenced loans on the Companys balance sheet;
    principal and interest payments in respect of the Legacy Credit
    Agreement are only due and payable to the extent of cash flow of
    the Company, which cash flow would include dividends declared
    and paid in respect of the REIT Securities, 70% of the amounts
    distributed by FCMC to the Company or any other assets of the
    Company, other than the retained interest in FCMC (as discussed
    below); and
    the Banks recourse in respect of the Legacy Credit
    Agreement is limited to the assets and stock of Franklin
    Holdings subsidiaries, excluding the assets of FCMC and a
    portion of FCMCs stock, representing not less than twenty
    percent and not more than seventy percent of FCMCs common
    equity, based on the amounts received by the Bank from the cash
    collections from FCMCs servicing of the Portfolio as
    discussed in more detail below. The Bank, in regard to the
    payment of principal and interest on its loan, also is entitled
    to receive seventy percent of the distributions and dividends
    from FCMC, which percentage share may be reduced to twenty
    percent based upon the Banks receipt of the agreed amounts
    of net remittances from the Portfolio summarized below. 65




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
    release of thirty percent of the equity in FCMC, which is wholly
    owned by the Company, from the Companys pledges to the
    Bank in respect of its legacy credit agreement, with the
    possibility of release of up to an additional fifty percent,
    based upon the Banks receipt of the agreed amounts of net
    remittances from the Portfolio, summarized below (the Net
    Remittances), from March 31, 2009, the effective date
    of the Legacy Credit Agreement (the Legacy Effective
    Date), through the term of the Legacy Credit Agreement;the Bank shall reduce its interest in the equity in FCMC, as
    collateral, in accordance with the following collection levels:  Minimum Amountof Net Remittances



Release of EquityLevel

(Minimum Level Amount)

Time Period

InterestsLevel 1


$225 million


1 year from the Legacy Effective Date

10% (70% reduces to 60%)Level 2


$475 million


3 years from the Legacy Effective Date

10% (60% reduces to 50%)Level 3


$575 million


No time period specified

10% (50% reduces to 40%)Level 4


$650 million


No time period specified

10% (40% reduces to 30%)Level 5


$750 million


No time period specified

10% (30% reduces to 20%)     
    entry into a servicing agreement enabling the Company to receive
    fee income in respect of its continued servicing of the
    transferred Portfolio; and
    entry into amended credit facilities in the aggregate principal
    amount of $13.5 million, including a $5 million
    facility for working capital and to support various servicer
    licenses, a $2 million revolving facility and a
    $6.5 million letter of credit facility to support various
    servicer licenses.    
    the possible transfer of ownership of a portion of FCMC,
    including a minimum of twenty percent and a maximum of seventy
    percent, to the Bank at maturity of the Companys Legacy
    Credit Agreement with the Bank, unless further extended if the
    Company is not otherwise able to satisfy or refinance the Legacy
    Credit Agreement prior to maturity;
    the transfer of ten percent of ownership of FCMC to the
    Companys principal stockholder as the cost of obtaining
    certain guarantees and pledges required by the Bank as a
    condition of the restructuring, subject to increase to an
    additional ten percent should the pledge of common shares of
    FCMC by Franklin Holding to the Bank be reduced upon the
    attainment by FCMC of certain net collection targets set by the
    Bank with respect to the Portfolio;
    entry into a service agreement with respect to FCMCs
    continued servicing of the Portfolio that allows the Bank to
    terminate such servicing and, concomitantly, FCMCs fee
    income from servicing the Portfolio; and 66




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
    in part as a result of a tax basis transfer, the Company may
    incur significant income tax liabilities at termination of the
    Legacy Credit Agreement, liquidation of the Company or any of
    its direct or indirect subsidiary companies, or certain other
    Company events such as a de facto liquidation. The amount of any
    tax liability that the Company may incur is not certain since
    any such calculations need to be performed on a company by
    company basis and are influenced by a number of factors
    including, but not limited to, the ability to use prior year
    losses and future results of operations.  Restructuring Agreements.
  Transferred of substantially all of the Portfolio in
    exchange for the REIT Securities
                 67




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Amended and restated substantially all of its
    outstanding debt.
  and/or
     68




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and/or
 69




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Entered into an amended and restated credit agreement
    to fund FCMCs licensing obligations and working
    capital.
            Entered into a servicing agreement with the New
    Trust
  and/or
   70




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Master
    Credit Facilities  Term Loans
    General. 30-day
    Interest Rates and Fees. 30-day
 71




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##### Table of Contents



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   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    72




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##### Table of Contents



Principal; Prepayments; Termination of
    Commitments.
    Covenants; Events of Default.
  Security.
  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      73




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##### Table of Contents



Warehouse
    Facilities
  Tribeca Warehouse.
    Flow Warehouse.
      Interest
    Rate Caps
     74




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Interest
    Rate Swaps
  non-amortizing,
  non-amortizing,
      Notional Amount


Term

Maturity Date

Fixed Rate


Estimated Fair Value*$
220,000,000


1 year

March 5, 2009


2.62
%

$
(577,643
)390,000,000


2 years

March 5, 2010


2.79
%


(8,638,881
)275,000,000


3 years

March 5, 2011


3.47
%


(13,331,530
)70,000,000


3 years

March 5, 2011


3.11
%


(2,722,655
)45,000,000


4 years

March 5, 2012


3.43
%


(2,482,727
)$
1,000,000,000










$
(27,753,436
)     *
    
    Determined in accordance with
    SFAS 157 based upon a Level 2 valuation
    methodology.    Safe
    Harbor Statement
   75




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Form 10-K Form 10-Q,
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Interest
    Rate Risk
      30-day
 76




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##### Table of Contents



Real
    Estate Risk
        ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-2
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   77




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ITEM 9A(T).
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
    Form 10-K, Rule 13a-15(e)
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f).
      Form 10-Q
  Form 10-K Form 10-K.
  ITEM 9B.
    OTHER
    INFORMATION   78




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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   79




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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. 80




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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. 81




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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. 82




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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.10.53

Joinder and Amendment No. 1 to Forbearance Agreement, dated
    as of March 31, 2008, by and among the borrowers listed on
    Schedule 1 thereto, Franklin Credit Management Corporation and
    The Huntington National Bank.  Incorporated by reference to
    Exhibit 10.55 to the Registrants Current Report on Form
    10-Q, dated as of March 31, 2008.10.54

Second Amended and Restated Tranche D Note, dated March 31,
    2008, by the borrowers listed on Schedule 1 to the Forbearance
    Agreement, in favor of The Huntington National Bank.
    Incorporated by reference to Exhibit 10.56 to the
    Registrants Current Report on Form 10-Q, dated as of
    March 31, 2008.10.55

Joinder and Amendment No. 1 to Tribeca Forbearance Agreement,
    dated March 31, 2008, by and among the borrowers listed on
    Schedule 1 thereof, including without limitation Tribeca Lending
    Corp. and Franklin Credit Management Corporation, and The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.57 to the Registrants Current Report on Form 10-Q,
    dated as of March 31, 2008. 83




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##### Table of Contents



ExhibitNumber10.56

Participation Agreement, dated March 31, 2008, by and between
    The Huntington National Bank, BOS (USA) Inc., and Tribeca
    Lending Corp. and its subsidiaries.  Incorporated by reference
    to Exhibit 10.58 to the Registrants Current Report on Form
    10-Q, dated as of March 31, 2008.10.57

Second Amended and Restated Tranche A Note, dated March 31,
    2008, by the borrowers listed on Schedule 1 to the Forbearance
    Agreement, in favor of The Huntington National Bank.
    Incorporated by reference to Exhibit 10.59 to the
    Registrants Current Report on Form 10-Q, dated as of
    March 31, 2008.10.58

Confirmation Letters, dated February 27, 2008, to the ISDA
    Master (Swap) Agreement between Franklin Credit Management
    Corporation and The Huntington National Bank, dated as of
    February 27, 2008.  Incorporated by reference to Exhibit
    10.64 to the Registrants Current Report on Form 10-Q,
    dated as of June 30, 2008.10.59

Confirmation Letters, dated April 30, 2008, to the ISDA Master
    (Swap) Agreement between Franklin Credit Management Corporation
    and The Huntington National Bank, dated as of February 27,
    2008.  Incorporated by reference to Exhibit 10.65 to the
    Registrants Current Report, on Form 10-Q, dated as of June
    30, 2008.10.60

Loan Servicing Agreement, dated May 28, 2008, by and between
    Franklin Credit Management Corporation and Bosco Credit LLC.
    Incorporated by reference to Exhibit 10.66 to the
    Registrants Current Report on Form 10-Q, dated as of June
    30, 2008.10.61

Amendment No. 2 to Forbearance Agreement, dated August 15, 2008,
    between the borrowers listed on Schedule 1 thereof, Franklin
    Credit Management Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.67 to the
    Registrants Current Report on Form 10-Q, dated as of June
    30, 2008.10.62

Amendment No. 2 to Tribeca Forbearance Agreement, dated August
    15, 2008, between the borrowers listed on Schedule 1 thereof,
    including without limitation Tribeca Lending Corp., Franklin
    Credit Management Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.68 to the
    Registrants Current Report on Form 10-Q, dated as of June
    30, 2008.10.63

Pledge, Assignment and Security Agreement, dated August 15,
    2008, by Franklin Credit Management Corporation in favor of The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.69 to the Registrants Current Report Form 10-Q, dated
    as of June 30, 2008.10.64

First Amended and Restated Certificate of Incorporation of
    Franklin Credit Management Corporation dated July 30, 2008.
    Incorporated by reference to Exhibit 3.1 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.65

Amended and Restated By-Laws of Franklin Credit Holding
    Corporation dated as of September 17, 2008. Incorporated by
    reference to Exhibit 3.2 to the Registrants Current Report
    on Form 8-K, dated as of December 19, 2008.10.66

Form of Acknowledgement.  Incorporated by reference to Exhibit
    10.1 to the Registrants Current Report on Form 8-K, dated
    as of December 19, 2008.10.67

Master Trust Agreement, dated as of December 15, 2008, by and
    among Franklin Credit Management Corporation, Tribeca Lending
    Corp., Deutsche Bank National Trust Company, and Deutsche Bank
    National Trust Company Delaware. Incorporated by reference to
    Exhibit 10.2 to the Registrants Current Report on Form
    8-K, dated as of December 19, 2008.10.68

First Amended and Restated Forbearance Agreement and Amendment
    to Credit Agreements, dated as of December 19, 2008, by and
    among the borrowers listed on Schedule 1 thereto, Franklin
    Credit Management Corporation, Franklin Credit Asset
    Corporation, Franklin Credit Holding Corporation and The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.3 to the Registrants Current Report on Form 8-K, dated
    as of December 19, 2008.10.69

First Amended and Restated Tribeca Forbearance Agreement and
    Amendment to Credit Agreements, dated as of December 19, 2008,
    by and among the borrowers listed on Schedule 1 thereto, Tribeca
    Lending Corp., Franklin Credit Management Corporation, Franklin
    Credit Holding Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.4 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008. 84




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ExhibitNumber10.70

Guaranty, dated as of December 19, 2008, by and between Franklin
    Credit Holding Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.5 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.71

Guaranty, dated as of December 19, 2008, by and between Franklin
    Credit Holding Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.6 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.72

Guaranty, dated as of December 19, 2008, by and between Franklin
    Credit Trust Series I and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.7 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.73

Guaranty, dated as of December 19, 2008, by and between Franklin
    Credit Trust Series I and The Huntington National Bank
    Incorporated by reference to Exhibit 10.8 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.74

Guaranty, dated as of December 19, 2008, by and between Tribeca
    Lending Trust Series I and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.9 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.75

Guaranty, dated as of December 19, 2008, by and between Tribeca
    Lending Trust Series I and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.10 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.76

Joinder Agreement No. 3 (Franklin), dated as of December 19,
    2008, by Franklin Credit Asset Corporation, Franklin Credit
    Holding Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.11 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.77

Joinder Agreement No. 3 (Tribeca), dated as of December 19,
    2008, by Tribeca Lending Corp., Franklin Credit Asset
    Corporation, Franklin Credit Holding Corporation and The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.12 to the Registrants Current Report on Form 8-K, dated
    as of December 19, 2008.10.78

Pledge Amendment (Franklin), dated as of December 19, 2008, by
    and among Franklin Credit Management Corporation, the parties
    listed on Schedule A thereto, Franklin Credit Asset Corporation,
    Franklin Credit Holding Corporation and The Huntington National
    Bank.  Incorporated by reference to Exhibit 10.13 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.79

Pledge Amendment (Tribeca), dated as of December 19, 2008, by
    and among Tribeca Lending Corp., the parties listed on Schedule
    A thereto, Franklin Credit Asset Corporation, Franklin Credit
    Holding Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.14 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.80

Pledge Amendment (Franklin Trust Certificate), dated as of
    December 19, 2008, by and among Franklin Credit Management
    Corporation, the parties listed on Schedule A thereto, Franklin
    Credit Asset Corporation, Franklin Credit Holding Corporation
    and The Huntington National Bank.  Incorporated by reference to
    Exhibit 10.15 to the Registrants Current Report on Form
    8-K, dated as of December 19, 2008.10.81

Security Agreement, dated as of December 19, 2008, by and
    between Franklin Credit Trust Series I and The Huntington
    National Bank.  Incorporated by reference to Exhibit 10.16 to
    the Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.82

Security Agreement, dated as of December 19, 2008, by and
    between Tribeca Lending Trust Series I and The Huntington
    National Bank.  Incorporated by reference to Exhibit 10.17 to
    the Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.83

Assignment Agreement, dated as of December 19, 2008, by and
    among Franklin Credit Management Corporation, Franklin Credit
    Holding Corporation and The Huntington National Bank
    Incorporated by reference to Exhibit 10.18 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008. 85




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##### Table of Contents



ExhibitNumber10.84

Guaranty, dated as of December 19, 2008, by and between Tribeca
    Lending Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.19 to the
    Registrants Current Report on Form 8-K, dated as of
    December 19, 2008.10.85

Amendment to Employment Agreement, dated as of December 30,
    2008, by and between Franklin Credit Management Corporation and
    Alexander Gordon Jardin.  Incorporated by reference to Exhibit
    10.89 to the Registrants Current Report on Form 8-K, dated
    as of December 30, 2008.10.86

Amendment to Employment Agreement, dated as of December 30,
    2008, by and between Franklin Credit Management Corporation and
    Paul Colasono.  Incorporated by reference to Exhibit 10.90 to
    the Registrants Current Report on Form 8-K, dated as of
    December 30, 2008.10.87

Amendment to Employment Agreement, dated as of December 30,
    2008, by and between Franklin Credit Management Corporation and
    William Sullivan.  Incorporated by reference to Exhibit 10.91 to
    the Registrants Current Report on Form 8-K, dated as of
    December 30, 2008.10.88

Amendment to Employment Agreement, dated as of December 30,
    2008, by and between Franklin Credit Management Corporation and
    Joseph Caiazzo.  Incorporated by reference to Exhibit 10.92 to
    the Registrants Current Report on Form 8-K, dated as of
    December 30, 2008.10.89*

First Amendment to Loan Servicing Agreement, dated as of
    February 27, 2009, by and between Franklin Credit Management
    Corporation and Bosco Credit, LLC.10.90

Trust Agreement by and among Franklin Credit Asset Corporation,
    Franklin Credit Management Corporation, Tribeca Lending Corp.
    and each of their respective subsidiaries, as Depositors, and
    The Huntington National Bank, as Certificate Trustee, and
    Wilmington Trust Company, as Owner Trustee, dated March 31,
    2009. Incorporated by reference to Exhibit 10.1 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.91

Transfer and Assignment Agreement by and among Franklin Mortgage
    Asset Trust 2009-A, Franklin Credit Asset Corporation, Franklin
    Credit Management Corporation, Tribeca Lending Corp. and each of
    their respective subsidiaries dated March 31, 2009.
    Incorporated by reference to Exhibit 10.2 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.92

Contribution Agreement by and among Franklin Asset, LLC and
    Franklin Asset Merger Sub, LLC dated March 31, 2009.
    Incorporated by reference to Exhibit 10.3 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.93

Agreement and Plan of Merger by and among Huntington Capital
    Financing, LLC, HCFFL, LLC, Franklin Asset, LLC, Franklin Credit
    Holding Corporation, Franklin Credit Asset Corporation, Tribeca
    Lending Corp. and each of their respective subsidiaries dated
    March 31, 2009.  Incorporated by reference to Exhibit 10.4 to
    the Registrants Current Report on Form 8-K, dated as of
    April 6, 2009.10.94

Amended and Restated Credit Agreement (Legacy) by and among
    Franklin Credit Asset Corporation, Tribeca Lending Corp. and the
    Other Borrowers Party hereto as Borrowers, the Financial
    Institutions Party hereto as Lenders, and the Huntington
    National Bank, as Administrative Agent, dated March 31,
    2009.  Incorporated by reference to Exhibit 10.5 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.95

The Limited Recourse Guarantee, dated as of March 3, 2009, made
    by Franklin Credit Holding Corporation in favor of The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.6 to the Registrants Current Report on Form 8-K, dated
    as of April 6, 2009.10.96

The Limited Recourse Guarantee, dated as of March 31, 2009, made
    by Franklin Credit Management Corporation in favor The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.7 to the Registrants Current Report on Form 8-K, dated
    as of April 6, 2009.10.97

The Amended and Restated Security Agreement, dated as of March
    31, 2009, by and among the Borrowers and The Huntington National
    Bank. Incorporated by reference to Exhibit 10.8 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.98

The Amended and Restated Pledge Agreement, dated as of March 31,
    2009, by and between Franklin Credit Holding Corporation and The
    Huntington National Bank.  Incorporated by reference to Exhibit
    10.9 to the Registrants Current Report on Form 8-K, dated
    as of April 6, 2009. 86




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##### Table of Contents



ExhibitNumber10.99

The Amended and Restated Pledge, Assignment and Security
    Agreement, dated as of March 31, 2009, by and between Franklin
    Credit Management Corporation and The Huntington National Bank.
    Incorporated by reference to Exhibit 10.10 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.10.100

The Investment Property Security Agreement, dated as of March
    31, 2009, by and between Franklin Credit Management Corporation
    and The Huntington National Bank.  Incorporated by reference to
    Exhibit 10.11 to the Registrants Current Report on Form
    8-K, dated as of April 6, 2009.10.101

Amended and Restated Credit Agreement (Licensing) by and among
    Franklin Credit Management Corporation and Franklin Credit
    Holding Corporation as Borrowers, the Financial Institutions
    Party hereto as Lenders, and the Huntington National Bank, as
    Administrative Agent, dated March 31, 2009.  Incorporated by
    reference to Exhibit 10.12 to the Registrants Current
    Report on Form 8-K, dated as of April 6, 2009.10.102

The Amended and Restated Security Agreement (Licensing), dated
    as of March 31, 2009, by and between Franklin Credit Management
    Corporation and The Huntington National Bank.  Incorporated by
    reference to Exhibit 10.13 to the Registrants Current
    Report on Form 8-K, dated as of April 6, 2009.10.103

Servicing Agreement by and among Franklin Mortgage Asset Trust
    2009-A and Franklin Credit Management Corporation dated March
    31, 2009 (confidential treatment requested for portions of this
    exhibit).  Incorporated by reference to Exhibit 10.14 to the
    Registrants Current Report on Form 8-K, dated as of April
    6, 2009.21.1*

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. 87




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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 10, 2009/s/  A.
    GORDON JARDINA.
    Gordon Jardin

Chief Executive Officer
    (Principal Executive Officer)

April 10, 2009/s/  PAUL
    D. COLASONOPaul
    D. Colasono

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

April 10, 2009/s/  WILLIAM
    F. SULLIVANWilliam
    F. Sullivan

Chief Operating Officer

April 10, 2009/s/  KIMBERLEY
    SHAWKimberley
    Shaw

Vice President and Treasurer
    (Controller)

April 10, 2009/s/  MICHAEL
    BERTASHMichael
    Bertash

Director

April 10, 2009/s/  FRANK
    EVANSFrank
    Evans

Director

April 10, 2009/s/  STEVEN
    LEFKOWITZSteven
    Lefkowitz

Director

April 10, 2009/s/  ALLAN
    R. LYONSAllan
    R. Lyons

Director

April 10, 2009  88




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  TABLE OF
    CONTENTS
  PageReport of Independent Registered Public
    Accounting FirmConsolidated Financial Statements:Consolidated Balance Sheets at December 31,
    2008 and 2007


F-2Consolidated Statements of Operations for the
    years ended December 31, 2008 and 2007


F-3Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2008 and 2007


F-4Consolidated Statements of Cash Flows for the
    years ended December 31, 2008 and 2007


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 HOLDING CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS

DECEMBER
    31, 2008 AND 2007  2008


2007ASSETSCash and cash equivalents

$
21,426,777


$
18,266,066Restricted cash


27,890,706



40,326,521Short-term investments, at fair value






4,735,308Notes Receivable:Principal


1,021,648,291



1,289,550,285Purchase discount


(9,777,475
)


(10,667,649
)Allowance for loan losses


(471,093,159
)


(230,809,938
)Net notes receivable


540,777,657



1,048,072,698Originated loans held for investment:Principal, net of deferred fees and costs


391,704,319



501,555,859Allowance for loan losses


(49,876,092
)


(23,851,715
)Originated loans held for investment, net


341,828,227



477,704,144Accrued interest receivable


10,055,241



22,989,901Other real estate owned


60,748,390



58,838,831Deferred financing costs, net


7,824,432



8,808,089Other receivables


7,028,334



4,917,598Building, furniture and equipment, net


2,042,436



3,363,306Income tax receivable


2,126,590



3,682,861Other assets


634,652



807,879Total assets

$
1,022,383,442


$
1,692,513,202LIABILITIES AND STOCKHOLDERS (DEFICIT)/EQUITYLiabilities:Notes payable, net of debt discount of $205,976 in 2008 and
    $232,365 in 2007

$
1,442,126,964


$
1,628,537,798Financing agreements


1,958,011



1,033,073Accounts payable and accrued expenses


15,056,870



23,108,149Derivative liabilities, at fair value


27,753,436



Deferred tax liability






543,507Total liabilities


1,486,895,281



1,653,222,527Commitments and ContingenciesStockholders (Deficit)/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 2008 and 2007


23,383,120



23,091,510Accumulated other comprehensive (loss)


(27,753,436
)


Retained (deficit)/earnings


(460,141,523
)


16,199,165Total stockholders (deficit)/equity


(464,511,839
)


39,290,675Total liabilities and stockholders (deficit)/equity

$
1,022,383,442


$
1,692,513,202    F-2




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS
    YEARS ENDED DECEMBER 31, 2008 AND 2007  2008


2007REVENUES:Interest income

$
93,100,602


$
155,922,774Purchase discount earned


2,590,174



4,956,814Gain on sale of notes receivable






31,118(Loss) on sale of originated loans






(305,446
)Gain on sale of other real estate owned


2,213,998



748,087Servicing fees and other income


12,024,492



7,908,842Total revenues


109,929,266



169,262,189OPERATING EXPENSES:Interest expense


78,463,161



143,253,577Collection, general and administrative


48,487,940



41,441,212Provision for loan losses


458,121,989



274,632,862Amortization of deferred financing costs


983,657



2,597,856Depreciation


1,538,465



1,413,049Total expenses


587,595,212



463,338,556(LOSS) BEFORE GAIN ON FORGIVENESS OF DEBT


(477,665,946
)


(294,076,367
)GAIN ON FORGIVENESS OF DEBT






284,246,320(LOSS) BEFORE PROVISION FOR INCOME TAXES


(477,665,946
)


(9,830,047
)INCOME TAX (BENEFIT)


(1,325,258
)


(1,191,043
)NET (LOSS)

$
(476,340,688
)

$
(8,639,004
)NET (LOSS) PER COMMON SHARE:Basic

$
(59.67
)

$
(1.09
)Diluted

$
(59.67
)

$
(1.09
)WEIGHTED AVERAGE NUMBER OF SHARESOutstanding, basic


7,982,483



7,941,545Diluted potential common shares






Outstanding, diluted


7,982,483



7,941,545    F-3




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)
    YEARS ENDED DECEMBER 31, 2008 AND 2007  AccumulatedCommon Stock and


Other


RetainedAdditional Paid-in Capital


Comprehensive


(Deficit)/Shares


Amount


Loss


Earnings


TotalBALANCE, JANUARY 1, 2007


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



39,290,675Stock-based compensation






291,610











291,610Net unrealized (losses) on derivatives










(27,753,436
)






(27,753,436
)Net (loss)














(476,340,688
)


(476,340,688
)BALANCE, DECEMBER 31, 2008


8,025,295


$
23,383,120


$
(27,753,436
)

$
(460,141,523
)

$
(464,511,839
)      F-4




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    YEARS ENDED DECEMBER 31, 2008 AND 2007  2008


2007CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)

$
(476,340,688
)

$
(8,639,004
)Adjustments to reconcile income to net cash provided by/(used
    in) operating activities:Gain on sale of notes receivable






(31,118
)Gain on sale of other real estate owned


(2,213,998
)


(748,087
)Loss on sale of originated loans






305,446Gain on forgiveness of debt






(284,246,320
)Depreciation


1,538,465



1,413,049Amortization of deferred costs and fees on originated loans, net


(512,511
)


970,999Amortization of deferred financing costs


983,657



2,597,856Amortization of debt discount


26,389



131,611Stock-based compensation


291,610



376,330Proceeds from the sale of and principal collections on loans
    held for sale






33,464,135Origination of loans held for sale






(34,473,560
)Deferred tax provision


(543,507
)


(3,111,976
)Purchase discount earned


(2,590,174
)


(4,956,814
)Provision for loan losses


458,121,989



274,632,862Changes in operating assets and liabilities:Accrued interest receivable


12,934,660



(979,874
)Other receivables


(2,110,736
)


1,696,788Income tax receivable


1,556,271



4,911,257Other assets


173,227



43,018Accounts payable and accrued expenses


(8,051,279
)


(607,787
)Net cash (used in) operating activities


(16,736,625
)


(17,251,189
)CASH FLOWS FROM INVESTING ACTIVITIES:Decrease/(increase) in restricted cash


12,435,815



(7,637,367
)Purchase of notes receivable






(440,678,212
)Principal collections on notes receivable


82,758,686



185,060,253Principal collections on loans held for investment


60,070,709



148,625,495Origination of loans held for investment






(257,143,067
)Repurchase of loans sold






(8,235,468
)Put back of acquired notes receivable


1,803,604



16,418,168Proceeds from short-term investments


4,735,308



15,575,885Proceeds from sale of other real estate owned


43,823,094



27,424,458Proceeds from sale of loans held for investment






12,716,251Proceeds from sale of notes receivable






20,998,838Purchase of building, furniture and fixtures


(217,594
)


(1,060,447
)Net cash provided by/(used in) investing activities


205,409,622



(287,935,213
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from notes payable






788,322,875Principal payments of notes payable


(186,437,224
)


(380,285,775
)Payment for debt restructure






(12,000,000
)Proceeds from financing agreements


2,005,606



387,825,703Principal payments of financing agreements


(1,080,668
)


(442,754,945
)Repurchase obligation






(18,094,061
)Payment of deferred financing costs






(3,544,432
)Net cash (used in)/provided by financing activities


(185,512,286
)


319,469,365NET CHANGE IN CASH AND CASH EQUIVALENTS


3,160,711



14,282,962CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


18,266,066



3,983,104CASH AND CASH EQUIVALENTS, END OF YEAR

$
21,426,777


$
18,266,066SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash payments for interest

$
84,113,492


$
179,280,158Cash payments for taxes

$
1,687,000


$
6,459,770NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer of loans from held for sale to loans held for investment

$



$
5,717,213Transfer to other real estate owned

$
90,096,019


$
62,537,477    F-5




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2008 AND
    2007  1.
    BASIS OF
    PRESENTATION AND BUSINESS    Going
    Concern
    Operating
    Losses and Stockholders Deficit
   F-6




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Licenses
    to Service Loans and December 2008 Corporate
    Reorganization
       F-7




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Amendments
    to Lending Agreements
   F-8




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                Franklins
    Business
   F-9




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation
    Operating Segments Disclosures
    about Segments of an Enterprise and Related Information
 F-10




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Earnings Per Share
  Cash and Cash Equivalents
  Restricted Cash
  Short-term Investments
  Notes Receivable and Income Recognition
     F-11




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Discounts on Acquired Loans SOP 03-3,
      SOP 03-3
  Allowance for Loan Losses
 F-12




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    SOP 03-3, SOP 03-3.
  Gain on Debt Forgiveness
  Originated Loans Held for Investment
    Other Real Estate Owned
 F-13




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivatives Accounting for Derivative Instruments and Hedging
    Activities,
         F-14




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Notional Amount


Term

Maturity Date


Fixed Rate


Estimated Fair Value*$
220,000,000


1 year


March 5, 2009



2.62
%

$
(577,643
)390,000,000


2 years


March 5, 2010



2.79
%


(8,638,881
)275,000,000


3 years


March 5, 2011



3.47
%


(13,331,530
)70,000,000


3 years


March 5, 2011



3.11
%


(2,722,655
)45,000,000


4 years


March 5, 2012



3.43
%


(2,482,727
)$
1,000,000,000












$
(27,753,436
)     *
    
    Determined in accordance with
    SFAS 157 based upon a Level 2 valuation
    methodology.    Fair
    Value Measurements
    
    Level 1 Inputs to the valuation
    methodology are quoted prices (unadjusted) for identical assets
    or liabilities in active markets.
    Level 2 Inputs to the valuation
    methodology include quoted prices for similar assets and
    liabilities in active markets and inputs that are observable for
    the asset of liability, either directly or indirectly, for
    substantially the full term of the financial instrument. Fair
    values for these instruments are estimated using pricing models,
    quoted prices of securities with similar characteristics, or
    discounted cash flows.
    Level 3 Inputs to the valuation
    methodology are unobservable and significant to the fair value
    measurement. Fair values are initially valued based upon
    transaction price and are adjusted to reflect exit values as
    evidenced by financing and sale transactions with third parties.      Level 1


Level 2


Level 3Interest rate swaps

$



$
(27,753,436
)

$
   Building, Furniture and Equipment
 F-15




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Deferred Financing Costs
  Retirement Plan
  Income Taxes Accounting for Income Taxes
  Servicing Fees 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, 2008 approximated
    $304 million based on an independent valuation as of
    February 28, 2009.  d.
    Loans Held for Investment The fair
    value of loans held for investment at December 31, 2008
    approximated $274 million based on an independent valuation
    as of February 28, 2009. F-16




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   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.  f.
    Long-term Debt The fair value of the
    Companys long-term debt (notes payable) at
    December 31, 2008 approximated $578 million.  Stock-Based Compensation Plans Accounting for Stock Issued to
    Employees Accounting for Stock-Based Compensation Share-Based Payment,
      Recent
    Accounting Pronouncements
  The Fair Value Option for Financial
    Assets and Financial Liabilities, including an amendment of FASB
    Statement No. 115
  Fair Value Measurements
 F-17




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for
    Uncertainty in Income Taxes,
    and/or
  3.
    NOTES RECEIVABLE,
    LOANS HELD FOR INVESTMENT AND LOANS HELD FOR SALE, PURCHASE
    DISCOUNT AND ALLOWANCE FOR LOAN LOSSES    2008


2007Real estate secured

$
974,530,982


$
1,245,925,742Manufactured and mobile homes


14,704,899



17,648,365Unsecured


32,412,410



25,976,1781,021,648,291



1,289,550,285Less:Purchase discount


(9,777,475
)


(10,667,649
)Allowance for loan losses


(471,093,159
)


(230,809,938
)Balance

$
540,777,657


$
1,048,072,698  F-18




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Real estate secured

$
394,016,324


$
504,852,283Consumer unsecured


723,935



168,686Manufactured homes






83,340394,740,259



505,104,309Less:Net deferred costs and fees


(3,035,940
)


(3,548,450
)Allowance for loan losses


(49,876,092
)


(23,851,715
)Balance

$
341,828,227


$
477,704,144       Loans HeldYear Ending December 31,

Notes Receivable


for Investment2009

$
11,818,771


$
3,221,7172010


12,510,388



3,365,9362011


13,230,956



3,533,2982012


13,736,872



3,716,3032013


13,946,568



16,016,001Thereafter


510,172,329



315,430,599$
575,415,884


$
345,283,854       2008


2007Balance, beginning

$
230,809,938


$
52,424,375Provision for loan losses


379,100,296



239,437,979Loans transferred to OREO


(19,534,424
)


(7,751,432
)Loans charged off


(120,090,487
)


(53,116,363
)Other, net


807,836



(184,621
)Balance, ending

$
471,093,159


$
230,809,938  F-19




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Balance, beginning

$
23,851,715


$
866,466Provision for loan losses


33,701,957



24,685,293Loans transferred to OREO


(5,616,457
)


(1,475,403
)Loans charged off


(2,169,623
)


(224,641
)Other, net


108,500



Balance, ending

$
49,876,092


$
23,851,715       2008


2007Total impaired notes receivable

$
615,159,200


$
330,212,508Allowance for loan losses related to impaired notes receivable

$
340,368,461


$
100,842,743Interest income recognized

$
23,137,469


$
16,081,404Average balance of impaired notes receivable during the year

$
472,685,854


$
290,711,628     2008


2007Total impaired loans held for investment

$
236,010,911


$
182,005,404Allowance for loan losses related to loans held for investment

$
40,328,866


$
9,593,929Interest income recognized

$
6,086,370


$
4,944,849Average balance of impaired loans held for investment during the
    year

$
209,008,158


$
146,056,479      F-20




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SOP 03-3
  2008


2007Accretable
    DiscountBalance, beginning of period

$
26,507,403


$
12,842,755New acquisitions






29,080Accretion


(1,646,651
)


(2,963,195
)Transfers from nonaccretable






17,158,157Net reductions relating to loans sold






(558,022
)Net reductions relating to loans repurchased






Other activity






(1,372
)Balance, end of period

$
24,860,752


$
26,507,403Nonaccretable
    DiscountBalance, beginning of period

$
102,141,880


$
60,531,503New acquisitions






88,011,140Transfers to accretable






(17,158,157
)Net reductions relating to loans sold






(227,821
)Net reductions relating to loans repurchased


(123,760
)


(1,182,727
)Net reductions relating to loans charged off


(1,379,028
)


(22,484,795
)Loans transferred to OREO, other


(3,035,726
)


(5,347,263
)Balance, end of period

$
97,603,366


$
102,141,880   SOP 03-3 SOP 03-3
  4.
    BUILDING,
    FURNITURE AND EQUIPMENT, NET    2008


2007Building and improvements

$
2,280,626


$
2,309,954Furniture and equipment


1,571,404



3,605,3903,852,030



5,915,344Less accumulated depreciation


(1,809,594
)


(2,552,038
)$
2,042,436


$
3,363,306  F-21




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5.
    NOTES PAYABLE      In Accordance with


Under the Terms ofthe Terms of the


Credit AgreementForbearance


Excluded from theAgreements


Forbearance AgreementsFHLB 30-day
    LIBOR advance rate plus 2.60%

$



$
16,556,134FHLB 30-day
    LIBOR advance rate plus 2.75%






24,380,952LIBOR plus 2.25%


865,832,436



LIBOR plus 2.75%


410,563,418



0.00% (fixed)*


125,000,000



$
1,401,395,854


$
40,937,086     *
    
    0% interest at least until maturity
    of the Forbearance Agreements in May 2009, or until all
    outstanding amounts under the Tranche A debt have been paid
    in full.      
    $40.9 million in Unrestructured Debt matured on
    December 31, 2008; however, notice of default has not yet
    been issued by the bank; and,
    $1.40 billion will mature on May 15, 2009 in
    accordance with the terms of the Forbearance Agreements.  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, F-22




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    $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.
  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. F-23




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Cash Flow.
  
    to pay interest in respect of Tranche A advances,
    Tranche B advances and, in the case of Franklin Credit,
    Tranche D advances, in that order;
    to pay fees related to the Companys letters of credit from
    the bank;
    to pay the minimum required principal payments in respect of
    Tranche A advances and Tranche B advances, in that
    order;
    to prepay outstanding Tranche A advances;
    to prepay outstanding Tranche B advances;
    to prepay Unrestructured Debt (excluding that owed to BOS);
    in the case of Franklin Credit, to repay Tranche D
    advances, any letter of credit exposure, and any obligations in
    respect of any interest rate hedge agreements with the bank;
    in the case of Franklin Credit, 90% of the available cash flow
    to repay interest and then principal of the Tranche C
    advances if Franklin Credit is acting as servicer of the
    underlying collateral, or 100% otherwise; and,
    in the case of Franklin Credit and Tribeca, to pay any advances
    then outstanding in respect of the others indebtedness to
    the bank, other than for Unrestructured Debt.  Covenants; Events of Default.
  
    the Companys reimbursable expenses in the ordinary course
    of business during each of the first two months after the date
    of the agreement will not exceed $2.5 million, excluding
    reimbursement of certain bank expenses after the date of the
    Restructuring, and thereafter, an amount provided for in an
    approved budget;
    the Company will not originate or acquire mortgage loans or
    other assets, perform due diligence or servicing, broker loans,
    or participate in off-balance sheet joint ventures and special
    purpose vehicles, without the prior consent of the bank;
    the Company will use its best efforts to obtain interest rate
    hedges acceptable to the bank in respect of the $1 billion
    of Tranche A indebtedness; F-24




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    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.
  March
    2008 Modifications to Forbearance Agreements and Refinancing of
    BOS Loan
     F-25




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    to provide that Tranche C interest shall not accrue until
    the first business day after all outstanding amounts under the
    Tranche A facility have been paid in full;
    to increase the Tranche C interest rate to 20% from and
    after such time it begins to accrue;
    to extend an additional period of forbearance through
    July 31, 2008, from May 15, 2008, in respect of the
    remaining Unrestructured Loans; and,
    to increase the maximum availability under the Tranche D
    line of credit to $10,000,000 for working capital and general
    corporate purposes to enable the Company to purchase real
    property in which it may have a lien, and for purposes of
    meeting licensing requirements.        August
    2008 Modification to Forbearance Agreements
   F-26




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Unrestructured
    Debt
    December
    2008 Modification to Forbearance Agreements
    
    Franklin Asset became a borrower under the Companys
    lending agreements with Huntington;
    the Trusts became guarantors for the Borrowers
    indebtedness to Huntington;
    FCMC, Franklin Asset and the Trusts each pledged its assets,
    including any equity interests in any of the Borrowers, as
    security for the Borrowers indebtedness to Huntington;


    Franklin Servicing LLC agreed to service, if necessary, the
    Companys mortgage loans in selected states;
    the Company agreed to maintain in effect one or more interest
    rate hedge agreements in an aggregate notional principal amount
    of not less than $1 billion, or such lesser amount as
    Huntington in its sole discretion may approve;
    the Companys Tranche D facility was amended to
    provide for (i) a revolving credit facility and letter of
    credit facility in the aggregate outstanding amount of
    $10 million, with a sublimit of $5 million, and, in
    addition, (ii) a separate letter of credit facility
    pursuant to which Huntington may issue letters of credit in its
    discretion, with a sublimit of $5.5 million;
    Huntington agreed to waive the Companys breach of covenant
    to comply with all laws, rules and regulations to the extent
    such breach results from the Companys failure to satisfy a
    minimum net worth requirement; and
    the covenant requiring FCMC and each of the Borrowers to
    maintain liquidity of at least $5 million was deleted.    
    Franklin Holding became a guarantor for the Borrowers
    indebtedness to Huntington; and
    Franklin Holding pledged its assets, including any equity
    interests in any of the Borrowers, as security for the
    Borrowers indebtedness to Huntington.    Master
    Credit Facilities  Term Loans
   F-27




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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
 F-28




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING 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%

260 basis pointsGreater than 4.50%

235 basis points   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.
 F-29




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Security.
  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        F-30




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.
    FINANCING
    AGREEMENTS      Warehousing
    Credit and Security Agreement
      Flow
    Warehousing Credit and Security Agreement
        Other
    Credit Facilities
   F-31




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      7.
    INCOME
    TAXES    2008


2007Current provision:Federal

$
(1,088,215
)

$
1,335,438State and local


306,464



585,495(781,751
)


1,920,933Deferred provision:Federal


(162,291,345
)


(3,434,773
)State and local


(13,921,367
)


(3,774,580
)(176,212,712
)


(7,209,353
)Increase in valuation allowance


175,669,205



4,097,377(Benefit)/provision

$
(1,325,258
)

$
(1,191,043
)     2008


2007Tax determined by applying U.S. statutory rate to income

$
(162,653,941
)

$
(3,342,216
)Increase in taxes resulting from:State and local taxes, net of Federal benefit


(13,615,221
)


(3,189,085
)Increase in valuation allowance


175,669,205



4,097,377Change in federal tax estimate


(1,124,961
)


1,189,364Non-deductible expenses


399,660



53,517$
(1,325,258
)

$
(1,191,043
)  F-32




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Deferred tax liabilities:Deferred loan costs

$
647,679


$
3,071,877Restricted stock


102,015



154,763Loans to subsidiary companies


6,629,226



6,629,226Other real estate owned






5,466,208Prepaid expenses, other assets


363,633



1,711,255Other


154,190



216,479Deferred tax liabilities

$
7,896,743


$
17,249,808Deferred tax assets:Loan basis

$
149,087,786


$
8,699,723Derivative liabilities


9,991,237



Other real estate owned


8,384,705



Acquisition costs


360,476



941,923State net operating loss carryforwards


7,807,847



4,217,431Deferred costs






5,671,325Federal net operating loss carryforwards


21,373,745



558,491Other


648,766



714,785Deferred tax assets

$
197,654,562


$
20,803,678Valuation allowance


(189,757,819
)


(4,097,377
)Net deferred tax liability

$



$
543,507       8.
    STOCK-BASED
    COMPENSATION     F-33




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Incentive Stock Options


Non-Qualified Stock Options2008


2007


2008


2007Risk-free interest rate


2.94
%


4.96
%


3.57
%


Weighted average volatility


103.06



95.15



102.23



Expected lives (years)


10.0



6.0



10.0



     2008


2007Weighted





WeightedAverage





AverageShares


Price


Shares


PriceOutstanding options, beginning


370,000


$
3.44



355,000


$
3.38Options granted


262,000



1.71



15,000



4.98Options cancelled


(50,000
)


2.05







Outstanding options, end


582,000



2.78



370,000



3.44Options unvested


(250,000
)


1.75







Options exercisable, end


332,000


$
3.56



370,000


$
3.44    F-34




---



##### Table of Contents



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


NumberOutstanding


ExercisableRange of exercise price of options:$0.75


189,000



189,000$0.85


10,000



10,000$0.89


12,000



12,000$1.04


6,000



6,000$1.75


250,000



$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


34,000



34,000TOTAL OPTIONS


582,000



332,000Weighted average exercise price

$
2.78


$
3.56       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-35




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2008


2007Weighted





WeightedAverage





AverageRestricted Stock

Shares


Fair Value


Shares


Fair ValueOutstanding unvested grants, beginning of year


65,000


$
8.24



95,000


$
8.36Granted





$







$
Vested


(33,750
)

$
8.54



(30,000
)

$
8.63Canceled





$







$
Outstanding unvested grants, end of year


31,250


$
7.90



65,000


$
8.24       9.
    SEGMENTS     F-36




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  PORTFOLIO
    ASSET ACQUISITION AND RESOLUTION
  2008


2007REVENUES:Interest income

$
72,586,631


$
115,545,302Purchase discount earned


2,555,543



4,825,085Gain on sale of notes receivable






32,417(Loss)/gain on sale of other real estate owned


(25,466
)


357,306Other


8,212,846



5,230,508Total revenues


83,329,554



125,990,618OPERATING EXPENSES:Interest expense


52,064,878



104,833,997Collection, general and administrative


36,620,553



29,819,621Provision for loan losses


393,367,806



248,371,548Amortization of deferred financing costs


606,006



1,680,453Depreciation


721,834



908,829Total operating expenses


483,381,077



385,614,448(LOSS) BEFORE EXTRAORDINARY ITEM

$
(400,051,523
)

$
(259,623,830
)Gain on debt forgiveness






284,246,320(LOSS)/GAIN BEFORE PROVISION FOR INCOME TAXES

$
(400,051,523
)

$
24,622,490  F-37




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  MORTGAGE
    BANKING
  2008


2007REVENUES:Interest income

$
20,513,971


$
40,377,472Purchase discount earned


34,631



131,729(Loss) on sale of notes receivable






(1,299
)(Loss) on sale of originated loans






(305,446
)Gain on sale of other real estate owned


2,239,464



390,781Other


3,811,646



2,678,334Total revenues


26,599,712



43,271,571OPERATING EXPENSES:Interest expense


26,398,283



38,419,580Collection, general and administrative


11,867,387



11,621,591Provision for loan losses


64,754,183



26,261,314Amortization of deferred financing costs


377,651



917,403Depreciation


816,631



504,220Total operating expenses


104,214,135



77,724,108(LOSS) BEFORE PROVISION FOR INCOME TAXES

$
(77,614,423
)

$
(34,452,537
)OTHER SELECTED SEGMENT RESULTSCONSOLIDATED ASSETS:Portfolio asset acquisition and resolution

$
598,239,478


$
1,149,317,726Mortgage banking


424,143,964



543,195,476Consolidated assets

$
1,022,383,442


$
1,692,513,202TOTAL ADDITIONS TO BUILDING, FURNITURE AND EQUIPMENT:Portfolio asset acquisition and resolution

$
2,042,436


$
274,527Mortgage banking






785,920Consolidated additions to building, furniture and equipment

$
2,042,436


$
1,060,447CONSOLIDATED REVENUE:Portfolio asset acquisition and resolution

$
83,329,554


$
125,990,618Mortgage banking


26,599,712



43,271,571Consolidated revenue

$
109,929,266


$
169,262,189CONSOLIDATED NET (LOSS)/INCOME:Portfolio asset acquisition and resolution

$
(398,726,265
)

$
12,234,119Mortgage banking


(77,614,423
)


(20,873,123
)Consolidated net (loss)

$
(476,340,688
)

$
(8,639,004
)  F-38




---



##### Table of Contents



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

2008


2007California


14.72
%


13.76
%New York


11.22
%


10.98
%New Jersey


9.44
%


9.68
%Florida


8.85
%


8.71
%Pennsylvania


4.53
%


4.53
%Texas


4.53
%


4.67
%Maryland


3.31
%


3.15
%Ohio


3.30
%


3.40
%Illinois


3.19
%


3.27
%Michigan


2.84
%


2.99
%All Others


34.07
%


34.86
%100.00
%


100.00
%       Financing
  11.
    COMMITMENTS
    AND CONTINGENCIES  Operating Leases
 F-39




---



##### Table of Contents



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

Amount2009

$
1,581,3452010


1,576,3312011


1,612,1972012


1,597,1072013


1,597,107Thereafter


$
7,964,087       Year Ended

Amount2009

$
146,1512010


18,846$
164,997   Capital Leases
    Year Ended

Amount2009

$
220,5842010


110,294330,878Less amounts representing interest


(15,338
)$
315,540  F-40




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Legal Actions
      Franklin
    Credit Management Corporation v. WMC Mortgage LLC
  Franklin Credit Management Corporation v. WMC
    Mortgage LLC, successor to WMC Mortgage Corp.
  Franklin Credit Management Corporation v.
    WMC Mortgage LLC, successor to WMC Mortgage Corp.
    Franklin
    Credit Management Corporation v. Decision One Mortgage
    Company, LLC and HSBC Finance Corporation
  Franklin Credit Management
    Corporation v. Decision One Mortgage Company, LLC and HSBC
    Finance Corporation
   F-41




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    RELATED
    PARTY TRANSACTIONS             F-42




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##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    QUARTERLY
    FINANCIAL INFORMATION (Unaudited)  Consolidated
    Statements of Operations
  2008 QuartersFourth


Third


Second


FirstRevenues:Interest income

$
15,052,778


$
19,122,096


$
26,605,598


$
32,320,130Purchase discount earned


456,032



547,392



805,409



781,341Gain on sale of other real estate owned


1,087,638



743,653



291,891



90,816Servicing fees and other income


3,120,525



3,706,094



3,175,150



2,022,723Total revenues


19,716,973



24,119,235



30,878,048



35,215,010Operating Expenses:Interest expense


18,411,150



18,267,375



18,902,627



22,882,009Collection, general and administrative


13,856,693



12,702,951



12,305,127



9,623,169Provision for loan losses


158,413,814



10,560,709



280,491,641



8,655,825Amortization of deferred financing costs


111,775



297,917



318,126



255,839Depreciation


676,431



247,732



297,676



316,626Total expenses


191,469,863



42,076,684



312,315,197



41,733,468(Loss) before income taxes


(171,752,890
)


(17,957,449
)


(281,437,149
)


(6,518,458
)Income tax (benefit)


(1,325,258
)










Net (loss)

$
(170,427,632
)

$
(17,957,449
)

$
(281,437,149
)

$
(6,518,458
)Net (loss) per common share:Basic

$
(21.32
)

$
(2.25
)

$
(35.26
)

$
(0.82
)Diluted

$
(21.32
)

$
(2.25
)

$
(35.26
)

$
(0.82
)   F-43




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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/(loss) 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


(13,219,790
)


(271,430,908
)


(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
)   14.
    SUBSEQUENT
    EVENTS  March
    2009 Restructuring
   F-44




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Background.
  
    a substantial and growing shortfall in case collections from the
    Portfolio relative to the Companys debt service
    obligations owed to the Bank;
    a substantial and growing shortfall in the value of the
    Companys assets, relative to the amounts owed to the Bank
    under the facility agreements for the Companys outstanding
    debt with the Bank;
    concern by potential servicing customers and other
    constituencies over the continued viability of the Company in
    its current form, including the viability of FCMC, the
    Companys servicing platform, which the Company believes as
    of December 31, 2008 to be financially sound on a
    unpledged, stand alone basis;
    concern that the Bank was increasingly likely to:  
    cease granting necessary waivers and forbearances with respect
    to Company defaults under the Companys various credit
    facilities; and
    declare a default with respect to the credit facilities and
    foreclose on the assets of the Company, substantially all of
    which were pledged to the Bank, especially in light of
    communications from the Bank indicating that it was seeking
    greater and more direct control over the assets in the Portfolio
    and was contemplating its remedies if a transaction like the
    Restructuring was not consummated by the end of the first
    quarter of 2009, and thus leaving no value for the
    Companys stockholders.    Executive Summary.
  
    in exchange for the transfer of the loans underlying the Bank
    Trust Certificates (as defined below), the Company received
    common membership interests and Class C preferred
    membership interests in the REIT having in the aggregate a value
    equal to the estimated fair market value of that portion of the
    Portfolio transferred to the Bank, which as of March 31,
    2009 was approximately $481.5 million (the REIT
    Securities). The preferred membership interests have a
    liquidation value of $100,000 per unit F-45




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and an annual dividend rate of 9% of such liquidation value. The
    REIT Securities replaced the above referenced loans on the
    Companys balance sheet;  
    principal and interest payments in respect of the Legacy Credit
    Agreement are only due and payable to the extent of dividends
    declared and paid in respect of the REIT Securities and 70% of
    the amounts distributed by FCMC to the Company or upon maturity
    or default under the credit agreements; and
    the Banks recourse in respect of the Legacy Credit
    Agreement is limited to the assets and stock of Franklin
    Holdings subsidiaries, excluding the assets of FCMC and a
    portion of FCMCs stock, representing not less than twenty
    percent and not more than seventy percent of FCMCs common
    equity, based on the amounts received by the Bank from the cash
    collections from FCMCs servicing of the Portfolio as
    discussed in more detail below. The Bank also will be entitled
    to receive seventy percent of the distributions and dividends
    from FCMC, which percentage share may be reduced to twenty
    percent based upon the Banks receipt of the agreed amounts
    of net remittances from the Portfolio summarized below.    
    release of thirty percent of the equity in FCMC, which is wholly
    owned by the Company, from the Companys pledges to the
    Bank in respect of its legacy credit agreement, with the
    possibility of release of up to an additional fifty percent,
    based upon the Banks receipt of the agreed amounts of net
    remittances from the Portfolio, summarized below (the Net
    Remittances), from March 31, 2009, the effective date
    of the Legacy Credit Agreement (the Legacy Effective
    Date), through the term of the Legacy Credit Agreement;
    the Bank shall reduce its interest in the equity in FCMC in
    accordance with the following collection levels:  Minimum Amountof Net RemittancesLevel

(Minimum Level Amount)


Time Period

Release of Equity InterestsLevel 1

$
225 million


1 year from the Legacy Effective Date

10% (70% reduces to 60%)Level 2

$
475 million


3 years from the Legacy Effective Date

10% (60% reduces to 50%)Level 3

$
575 million


No time period specified

10% (50% reduces to 40%)Level 4

$
650 million


No time period specified

10% (40% reduces to 30%)Level 5

$
750 million


No time period specified

10% (30% reduces to 20%)     
    entry into a servicing agreement enabling the Company to receive
    fee income in respect of its continued servicing of the
    transferred Portfolio; and F-46




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    entry into amended credit facilities in the aggregate principal
    amount of $13.5 million, including a $5 million
    facility for working capital and to support various servicer
    licenses, a $2 million revolving facility and a
    $6.5 million letter of credit facility to support various
    servicer licenses.    
    the possible transfer of ownership of a portion of FCMC,
    including a minimum of twenty percent and a maximum of seventy
    percent, to the Bank at maturity of the Companys Legacy
    Credit Agreement with the Bank, unless further extended if the
    Company is not otherwise able to satisfy or refinance the Legacy
    Credit Agreement prior to maturity;
    the transfer of ten percent of ownership of FCMC to the
    Companys principal stockholder as the cost of obtaining
    certain guarantees and pledges required by the Bank as a
    condition of the restructuring, subject to increase to an
    additional ten percent should the pledge of common shares of
    FCMC by Franklin Holding to the Bank be reduced upon the
    attainment by FCMC of certain net collection targets set by the
    Bank with respect to the Portfolio;
    entry into a service agreement with respect to FCMCs
    continued servicing of the Portfolio that allows the Bank to
    terminate such servicing and, concomitantly, FCMCs fee
    income from servicing the Portfolio; and
    in part as a result of a tax basis transfer, the Company may
    incur significant income tax liabilities at termination of the
    Legacy Credit Agreement, liquidation of the Company or any of
    its direct or indirect subsidiary companies, or certain other
    Company events such as a de facto liquidation. The amount of any
    tax liability that the Company may incur is not certain since
    any such calculations need to be performed on a company by
    company basis and are influenced by a number of factors
    including, but not limited to, the ability to use prior year
    losses and future results of operations.  Restructuring Agreements.
  1.
    Transferred of substantially all of the Portfolio in exchange
    for the REIT Securities.             F-47




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2.
    Amended and restated substantially all of its outstanding
    debt.   F-48




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
       F-49




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  3.
    Entered into an amended and restated credit agreement to
    fund FCMCs licensing obligations and working
    capital.     F-50




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        4.
    Entered into a servicing agreement with the New Trust.  and/or
         F-51




---



##### Table of Contents



FRANKLIN
    CREDIT HOLDING CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Amendment
    to Bosco Servicing Agreement
   F-52