##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission file number 0-17771
 FRANKLIN CREDIT MANAGEMENT CORPORATION
  Delaware
    
    75-2243266(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)101 Hudson StreetJersey City, New Jersey
    
    07302(Address of Principal
    
    (Zip code)Executive Offices)
 (201) 604-1800
 þ o
  o o o þ
  o þ




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations for the three and six months ended
June 30, 2008 and June 30, 2007
    
    
    4Consolidated Statement of Changes in Stockholders Equity
for the six months ended June 30, 2008
    
    
    5Consolidated Statements of Cash Flows for the six months ended
June 30, 2008 and June 30, 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    23Application of Critical Accounting Policies and Estimates
    
    
    24Portfolio Characteristics
    
    
    25Results of Operations
    
    
    39Liquidity and Capital Resources
    
    
    45Borrowings
    
    
    48Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    57Item 4. Controls and Procedures
    
    
    59PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    60Item 1A. Risk Factors
    
    
    60Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    64Item 3. Defaults Upon Senior Securities
    
    
    64Item 4. Submission of Matters to a Vote of Security Holders
    
    
    65Item 5. Other Information
    
    
    65Item 6. Exhibits
    
    
    66SIGNATURES
    
    
    67EX-10.64: CONFIRMATION LETTERSEX-10-65: CONFIRMATION LETTERSEX-10.66: LOAN SERVICING AGREEMENTEX-10.67: AMENDMENT NO. 2 TO FORBEARANCE AGREEMENTEX-10.68: AMENDMENT NO. 2 TO TRIBECA FORBEARANCE AGREEMENTEX-10.69: PLEDGE, ASSIGNMENT AND SECURITY AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
 
  June 30, 2008(Unaudited)
    
    
    December 31, 2007ASSETSCash and cash equivalents
    
    $
    14,577,245
    
    
    $
    18,266,066Restricted cash
    
    
    36,537,462
    
    
    
    40,326,521Short-term investments
    
    
    4,804,616
    
    
    
    4,735,308Notes Receivable:Principal
    
    
    1,162,172,847
    
    
    
    1,289,550,285Purchase discount
    
    
    (10,097,785
    )
    
    
    (10,667,649
    )Allowance for loan losses
    
    
    (422,293,675
    )
    
    
    (230,809,938
    )Net notes receivable
    
    
    729,781,387
    
    
    
    1,048,072,698Originated loans held for investment:Principal, net of deferred fees and costs
    
    
    438,899,317
    
    
    
    501,555,859Allowance for loan losses
    
    
    (40,075,493
    )
    
    
    (23,851,715
    )Originated loans held for investment, net
    
    
    398,823,824
    
    
    
    477,704,144Accrued interest receivable
    
    
    20,033,240
    
    
    
    22,989,901Other real estate owned
    
    
    61,843,230
    
    
    
    58,838,831Deferred financing costs, net
    
    
    8,234,124
    
    
    
    8,808,089Other receivables
    
    
    5,911,148
    
    
    
    4,917,598Building, furniture and equipment, net
    
    
    2,827,879
    
    
    
    3,363,306Income tax receivable
    
    
    4,083,597
    
    
    
    3,682,861Derivatives
    
    
    6,040,349
    
    
    
    Other assets
    
    
    1,223,293
    
    
    
    807,879Total assets
    
    $
    1,294,721,394
    
    
    $
    1,692,513,202LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Notes payable, net of debt discount of $217,086 at June 30, 2008
and $232,365 at December 31, 2007
    
    $
    1,519,258,191
    
    
    $
    1,628,537,798Financing agreements
    
    
    927,525
    
    
    
    1,033,073Accounts payable and accrued expenses
    
    
    16,475,360
    
    
    
    23,108,149Deferred tax liability
    
    
    543,507
    
    
    
    543,507Total liabilities
    
    
    1,537,204,583
    
    
    
    1,653,222,527Commitments and ContingenciesStockholders Equity:Preferred stock, $.01 par value; authorized 3,000,000; issued  none
    
    
    
    
    
    
    Common stock and additional paid-in capital, $0.01 par value,
22,000,000 authorized shares; issued and outstanding: 8,025,295 at
June 30, 2008 and 8,025,295 at December 31, 2007
    
    
    23,232,904
    
    
    
    23,091,510Accumulated other comprehensive income
    
    
    6,040,349
    
    
    
    (Accumulated deficit)/Retained earnings
    
    
    (271,756,442
    )
    
    
    16,199,165Total stockholders (deficit)/equity
    
    
    (242,483,189
    )
    
    
    39,290,675Total liabilities and stockholders equity
    
    $
    1,294,721,394
    
    
    $
    1,692,513,202
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FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
 
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Interest income
    
    $
    26,605,598
    
    
    $
    43,393,657
    
    
    $
    58,925,728
    
    
    $
    82,297,592Purchase discount earned
    
    
    805,409
    
    
    
    1,366,649
    
    
    
    1,586,750
    
    
    
    2,780,207Gain on sale of notes receivable
    
    
    
    
    
    
    31,118
    
    
    
    
    
    
    
    31,118Gain on sale of originated loans
    
    
    
    
    
    
    197,694
    
    
    
    
    
    
    
    200,733Gain on sale of other real estate owned
    
    
    291,891
    
    
    
    117,632
    
    
    
    382,707
    
    
    
    238,807Prepayment penalties and other income
    
    
    3,175,150
    
    
    
    2,024,813
    
    
    
    5,197,873
    
    
    
    4,124,793Total revenues
    
    
    30,878,048
    
    
    
    47,131,563
    
    
    
    66,093,058
    
    
    
    89,673,250Operating Expenses:Interest expense
    
    
    18,902,627
    
    
    
    35,408,803
    
    
    
    41,784,636
    
    
    
    66,968,607Collection, general and administrative
    
    
    12,305,127
    
    
    
    10,769,328
    
    
    
    21,928,296
    
    
    
    19,662,773Provision for loan losses
    
    
    280,491,641
    
    
    
    5,663,222
    
    
    
    289,147,466
    
    
    
    9,996,686Amortization of deferred financing costs
    
    
    318,126
    
    
    
    977,663
    
    
    
    573,965
    
    
    
    1,753,498Depreciation
    
    
    297,676
    
    
    
    369,809
    
    
    
    614,302
    
    
    
    717,355Total expenses
    
    
    312,315,197
    
    
    
    53,188,825
    
    
    
    354,048,665
    
    
    
    99,098,919(Loss) before provision for income taxes
    
    
    (281,437,149
    )
    
    
    (6,057,262
    )
    
    
    (287,955,607
    )
    
    
    (9,425,669
    )Income tax (benefit)
    
    
    
    
    
    
    (2,473,949
    )
    
    
    
    
    
    
    (3,888,680
    )Net (loss)
    
    $
    (281,437,149
    )
    
    $
    (3,583,313
    )
    
    $
    (287,955,607
    )
    
    $
    (5,536,989
    )Net (loss) per common share:Basic
    
    $
    (35.26
    )
    
    $
    (0.45
    )
    
    $
    (36.10
    )
    
    $
    (0.70
    )Diluted
    
    $
    (35.26
    )
    
    $
    (0.45
    )
    
    $
    (36.10
    )
    
    $
    (0.70
    )Weighted average number of shares outstanding:Basic
    
    
    7,981,545
    
    
    
    7,940,295
    
    
    
    7,975,920
    
    
    
    7,935,295Diluted
    
    
    7,981,545
    
    
    
    7,940,295
    
    
    
    7,975,920
    
    
    
    7,935,295
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FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
 
   AccumulatedCommon Stock and
    
    
    Other
    
    
    RetainedAdditional Paid-in Capital
    
    
    Comprehensive
    
    
    Earnings/Shares
    
    
    Amount
    
    
    Loss
    
    
    (Deficit)
    
    
    TotalBALANCE, JANUARY 1, 2008
    
    
    8,025,295
    
    
    $
    23,091,510
    
    
    $
    
    
    
    $
    16,199,165
    
    
    $
    39,290,675Stock-based compensation
    
    
    
    
    
    
    141,394
    
    
    
    
    
    
    
    
    
    
    
    141,394Net unrealized gains on derivatives
    
    
    
    
    
    
    
    
    
    
    6,040,349
    
    
    
    
    
    
    
    6,040,349Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (287,955,607
    )
    
    
    (287,955,607
    )BALANCE, JUNE 30, 2008
    
    
    8,025,295
    
    
    $
    23,232,904
    
    
    $
    6,040,349
    
    
    $
    (271,756,442
    )
    
    $
    (242,483,189
    )
   5




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##### Table of Contents



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
 
   Six Months Ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)
    
    $
    (287,955,607
    )
    
    $
    (5,536,989
    )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
    
    
    (382,707
    )
    
    
    (238,807
    )Gain on sale of originated loans
    
    
    
    
    
    
    (200,733
    )Depreciation
    
    
    614,302
    
    
    
    717,355Amortization of deferred costs and fees on originated loans
    
    
    (296,848
    )
    
    
    1,007,867Amortization of deferred financing costs
    
    
    573,965
    
    
    
    1,753,498Amortization of debt discount and success fees
    
    
    15,279
    
    
    
    90,300Non-cash compensation
    
    
    141,394
    
    
    
    246,035Proceeds from the sale of and principal collections on loans held for sale
    
    
    
    
    
    
    26,397,862Deferred tax provision
    
    
    
    
    
    
    (2,928,207
    )Purchase discount earned
    
    
    (1,586,750
    )
    
    
    (2,780,207
    )Provision for loan losses
    
    
    289,147,466
    
    
    
    9,996,686Origination of loans held for sale
    
    
    
    
    
    
    (32,221,015
    )Changes in operating assets and liabilities:Accrued interest receivable
    
    
    2,956,661
    
    
    
    (4,552,593
    )Other receivables
    
    
    (993,550
    )
    
    
    (450,793
    )Income tax receivable
    
    
    (400,736
    )
    
    
    265,180Other assets
    
    
    (415,414
    )
    
    
    (190,527
    )Accounts payable and accrued expenses
    
    
    (6,632,789
    )
    
    
    2,253,252Net cash (used in) operating activities
    
    
    (5,215,334
    )
    
    
    (6,402,954
    )CASH FLOWS FROM INVESTING ACTIVITIES:Decrease/(increase) in restricted cash
    
    
    3,789,059
    
    
    
    (894,524
    )Purchase of notes receivable
    
    
    
    
    
    
    (386,132,716
    )Principal collections on notes receivable
    
    
    49,731,473
    
    
    
    105,768,330Principal collections on loans held for investment
    
    
    40,126,149
    
    
    
    97,018,212Origination of loans held for investment
    
    
    
    
    
    
    (177,642,361
    )Investment in short-term securities
    
    
    (69,308
    )
    
    
    (3,031,030
    )Repurchase of loans held for sale and loans held for investment
    
    
    
    
    
    
    (6,325,528
    )Putback of acquired notes receivable
    
    
    394,893
    
    
    
    12,598,126Proceeds from sale of other real estate owned
    
    
    17,033,555
    
    
    
    16,189,577Proceeds from sale of loans held for investment
    
    
    
    
    
    
    11,088,596Proceeds from sale of notes receivable
    
    
    
    
    
    
    20,998,838Purchase of building, furniture and equipment
    
    
    (78,874
    )
    
    
    (937,788
    )Net cash provided by/(used in) investing activities
    
    
    110,926,947
    
    
    
    (311,302,268
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from notes payable
    
    
    
    
    
    
    600,860,150Principal payments of notes payable
    
    
    (109,294,886
    )
    
    
    (259,889,760
    )Proceeds from financing agreements
    
    
    291,980
    
    
    
    285,207,486Principal payments of financing agreements
    
    
    (397,528
    )
    
    
    (282,909,162
    )Repurchase obligation
    
    
    
    
    
    
    (18,094,061
    )Payment of deferred financing costs
    
    
    
    
    
    
    (2,908,175
    )Net cash (used in)/provided by financing activities
    
    
    (109,400,434
    )
    
    
    322,266,478NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (3,688,821
    )
    
    
    4,561,256CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    18,266,066
    
    
    
    3,983,104CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    14,577,245
    
    
    $
    8,544,360SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    41,784,636
    
    
    $
    82,993,281Cash payments for taxes
    
    $
    400,736
    
    
    $
    89,708NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer from loans held for sale to loans held for investment
    
    $
    
    
    
    $
    704,698Transfer from notes receivable and loans held for investment to OREO
    
    $
    41,886,259
    
    
    $
    26,115,529
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##### Table of Contents



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
 
  1. BUSINESS
 Overview
  Allowance for Loan Losses and Stockholders Deficit
  Licenses to Service Loans
  7




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Delisting  The Nasdaq Capital Market
  Financing
   8




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##### Table of Contents



Recent Event  Financing
  Franklins Business
     9




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##### Table of Contents



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
   10




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Due Diligence Services
  Loan Servicing
    11




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##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Notes Receivable and Income Recognition
  12




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Discounts on Acquired Loans
   13




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Three Months Ended June 30,2008
    
    
    2007Accretable DiscountBalance, beginning of period
    
    $
    25,995,503
    
    
    $
    16,311,205New acquisitions
    
    
    
    
    
    
    Accretion
    
    
    (491,095
    )
    
    
    (807,939
    )Transfers from nonaccretable
    
    
    
    
    
    
    2,303,550Net reductions relating to loans sold
    
    
    
    
    
    
    (558,022
    )Net reductions relating to loans repurchased
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Balance, end of period
    
    $
    25,504,408
    
    
    $
    17,248,794Nonaccretable DiscountBalance, beginning of period
    
    $
    100,636,152
    
    
    $
    73,782,538New acquisitions
    
    
    
    
    
    
    50,637,093Transfers to accretable
    
    
    
    
    
    
    (2,303,550
    )Net reductions relating to loans sold
    
    
    
    
    
    
    (227,821
    )Net reductions relating to loans repurchased
    
    
    
    
    
    
    (340,347
    )Net reduction relating to loans charged off
    
    
    (109,541
    )
    
    
    (1,905,237
    )Loans transferred to OREO, other
    
    
    (890,353
    )
    
    
    (1,755,372
    )Balance, end of period
    
    $
    99,636,258
    
    
    $
    117,887,304
 Six Months Ended June 30,2008
    
    
    2007Accretable DiscountBalance, beginning of period
    
    $
    26,507,403
    
    
    $
    12,842,755New acquisitions
    
    
    
    
    
    
    29,080Accretion
    
    
    (1,002,995
    )
    
    
    (1,530,698
    )Transfers from nonaccretable
    
    
    
    
    
    
    6,467,051Net reductions relating to loans sold
    
    
    
    
    
    
    (558,022
    )Net reductions relating to loans repurchased
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (1,372
    )Balance, end of period
    
    $
    25,504,408
    
    
    $
    17,248,794Nonaccretable DiscountBalance, beginning of period
    
    $
    102,141,880
    
    
    $
    60,531,503New acquisitions
    
    
    
    
    
    
    71,516,117Transfers to accretable
    
    
    
    
    
    
    (6,467,052
    )Net reductions relating to loans sold
    
    
    
    
    
    
    (227,821
    )Net reductions relating to loans repurchased
    
    
    (21,337
    )
    
    
    (493,614
    )Net reduction relating to loans charged off
    
    
    (868,928
    )
    
    
    (3,990,477
    )Loans transferred to OREO, other
    
    
    (1,615,357
    )
    
    
    (2,981,352
    )Balance, end of period
    
    $
    99,636,258
    
    
    $
    117,887,304
 14




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Originated Loans Held for Sale
   Originated Loans Held for Investment
  Allowance for Loan Losses
 15




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Three Months Ended June 30,2008
    
    
    2007Allowance for loan losses, beginning of period
    
    $
    251,626,987
    
    
    $
    50,538,813Provision for loan losses
    
    
    262,420,799
    
    
    
    3,141,647Loans transferred to OREO
    
    
    (4,273,245
    )
    
    
    (2,337,988
    )Loans charged off
    
    
    (47,373,393
    )
    
    
    (2,958,679
    )Other, net
    
    
    (31,980
    )
    
    
    (249,233
    )Allowance for loan losses, end of period
    
    $
    462,369,168
    
    
    $
    48,134,560
 Six Months Ended June 30,2008
    
    
    2007Allowance for loan losses, beginning of period
    
    $
    254,661,653
    
    
    $
    53,290,841Provision for loan losses
    
    
    267,587,175
    
    
    
    5,338,303Loans transferred to OREO
    
    
    (6,713,115
    )
    
    
    (4,125,520
    )Loans charged off
    
    
    (53,058,255
    )
    
    
    (6,161,351
    )Other, net
    
    
    (108,290
    )
    
    
    (207,713
    )Allowance for loan losses, end of period
    
    $
    462,369,168
    
    
    $
    48,134,560
  Stock-Based Compensation Plans Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
 16




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##### Table of Contents



Stock Options
   Incentive Stock Options
    
    Non-Qualified Stock OptionsSix Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    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
    
    
    
    
 17




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##### Table of Contents



WeightedAverageWeighted
    
    Remaining
    
    AggregateAverage
    
    Contractual
    
    IntrinsicShares
    
    Exercise
    
    Term
    
    ValueBalance, January 1, 2008
    
    
    370,000
    
    
    $
    3.44
    
    
    4.82 years
    
    $
    23,400Granted
    
    
    262,000
    
    
    
    1.71
    
    
    9.82 years
    
    
    Forfeited
    
    
    (50,000
    )
    
    
    2.05
    
    
    
    
    
    
    
    Balance, June 30, 2008
    
    
    582,000
    
    
    
    2.78
    
    
    6.78 years
    
    
    14,040Options unvested
    
    
    (250,000
    )
    
    
    1.75
    
    
    
    
    
    
    
    Options exercisable at June 30, 2008
    
    
    332,000
    
    
    $
    3.56
    
    
    4.49 years
    
    $
    
    Restricted Stock
  Weighted AverageGrant DateShares
    
    Fair ValueNon-vested balance, January 1, 2008
    
    
    65,000
    
    
    $
    8.24Vested
    
    
    (16,250
    )
    
    
    9.42Forfeited
    
    
    
    
    
    
    Non-vested balance, June 30, 2008
    
    
    48,750
    
    
    $
    7.84
  18




---



##### Table of Contents



Operating Segments Disclosures about Segments of an Enterprise and Related
Information
  Three Months Ended June 30,2008
    
    
    2007CONSOLIDATED REVENUE:Portfolio asset acquisition and resolution
    
    $
    23,351,051
    
    
    $
    35,097,042Mortgage banking
    
    
    7,526,997
    
    
    
    12,034,521Consolidated revenue
    
    $
    30,878,048
    
    
    $
    47,131,563CONSOLIDATED NET INCOME:Portfolio asset acquisition and resolution
    
    $
    (255,705,153
    )
    
    $
    (2,072,685
    )Mortgage banking
    
    
    (25,731,996
    )
    
    
    (1,510,628
    )Consolidated net income
    
    $
    (281,437,149
    )
    
    $
    (3,583,313
    )
 Six Months Ended June 30,2008
    
    
    2007CONSOLIDATED REVENUE:Portfolio asset acquisition and resolution
    
    $
    48,334,958
    
    
    $
    67,126,405Mortgage banking
    
    
    17,758,100
    
    
    
    22,546,845Consolidated revenue
    
    $
    66,093,058
    
    
    $
    89,673,250CONSOLIDATED NET INCOME:Portfolio asset acquisition and resolution
    
    $
    (259,228,514
    )
    
    $
    (3,632,572
    )Mortgage banking
    
    
    (28,727,093
    )
    
    
    (1,904,417
    )Consolidated net income
    
    $
    (287,955,607
    )
    
    $
    (5,536,989
    )
 June 30, 2008
    
    
    December 31, 2007CONSOLIDATED ASSETS:Portfolio asset acquisition and resolution
    
    $
    783,719,156
    
    
    $
    1,149,317,726Mortgage banking
    
    
    511,002,238
    
    
    
    543,195,476Consolidated assets
    
    $
    1,294,721,394
    
    
    $
    1,692,513,202
 Recent Accounting Pronouncements The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115
 19




---



##### Table of Contents



Fair
Value Measurements
 Accounting for Uncertainty in
Income Taxes Accounting for Uncertainty in Income Taxes Accounting for Income
Taxes
   Derivatives Accounting for Derivative Instruments and
Hedging Activities
 20




---



##### Table of Contents



Swaps in Cash Flow
    
    Amount Recognized
    
    Ineffective AmountHedging
    
    in OCI
    
    Recognized inRelationships
    
    (Effective Portion)
    
    EarningsInterest rate contracts
    
    $
    6,040,349
    
    
    $
    
 21




---



##### Table of Contents



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
    
    $
    
    
    
    $
    6,040,349
    
    
    $
    Short-term investments
    
    $
    
    
    
    $
    4,804,616
    
    
    $
    
 22




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
 Safe Harbor Statements.
 Allowance for Loan Losses
  23




---



##### Table of Contents



Application of Critical Accounting Policies and Estimates
  24




---



##### Table of Contents



Portfolio Characteristics
 Overall Portfolio
  Percentage of TotalProperty Types
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    $
    1,441,599,784
    
    
    
    83.33
    %Condos, co-ops, PUD dwellings
    
    
    217,306,387
    
    
    
    12.56
    %Manufactured and mobile homes
    
    
    16,412,129
    
    
    
    0.95
    %Multi-family
    
    
    496,524
    
    
    
    0.03
    %Secured, property type unknown(1)
    
    
    21,971,176
    
    
    
    1.27
    %Commercial
    
    
    2,359,273
    
    
    
    0.13
    %Unsecured loans(2)
    
    
    29,765,816
    
    
    
    1.72
    %Other
    
    
    130,040
    
    
    
    0.01
    %Total
    
    $
    1,730,041,129
    
    
    
    100.00
    %
 
 (1)
    
    The loans included in this category are principally small balance (less than $10,000)
second-lien loans acquired, and are collateralized by residential real estate.(2)
    
    The loans included in this category are principally second-lien loans where the
residential real estate collateral has been foreclosed by the first-lien holder. Geographic Dispersion.
 Percentage of TotalLocation
    
    Principal Balance
    
    
    Principal BalanceCalifornia
    
    $
    253,272,609
    
    
    
    14.64
    %New York
    
    
    188,426,720
    
    
    
    10.89
    %New Jersey
    
    
    162,739,269
    
    
    
    9.41
    %Florida
    
    
    153,721,776
    
    
    
    8.89
    %Pennsylvania
    
    
    78,897,507
    
    
    
    4.56
    %Texas
    
    
    77,221,715
    
    
    
    4.46
    %Illinois
    
    
    57,408,968
    
    
    
    3.32
    %Ohio
    
    
    57,302,015
    
    
    
    3.31
    %Maryland
    
    
    54,187,738
    
    
    
    3.13
    %Michigan
    
    
    49,585,507
    
    
    
    2.87
    %All Others
    
    
    597,277,305
    
    
    
    34.52
    %Total
    
    $
    1,730,041,129
    
    
    
    100.00
    %
  25




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Asset Quality
 Delinquency .
  26




---



##### Table of Contents



June 30, 2008Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Current
    
    0 - 30 days
    
    $
    676,391,438
    
    
    
    39.10
    %
    
    $
    770,301,842
    
    
    
    44.52
    %Delinquent
    
    31 - 60 days
    
    
    82,063,390
    
    
    
    4.74
    %
    
    
    58,762,438
    
    
    
    3.40
    %61 - 90 days
    
    
    47,336,597
    
    
    
    2.74
    %
    
    
    32,706,102
    
    
    
    1.89
    %90+ days
    
    
    171,861,823
    
    
    
    9.93
    %
    
    
    115,882,866
    
    
    
    6.70
    %Modified Loans
    
    0 - 30 days
    
    
    108,810,386
    
    
    
    6.29
    %
    
    
    108,921,061
    
    
    
    6.30
    %Delinquent
    
    31 - 60 days
    
    
    7,792,798
    
    
    
    0.45
    %
    
    
    7,755,121
    
    
    
    0.45
    %61 - 90 days
    
    
    
    
    
    
    
    
    
    
    165,845
    
    
    
    0.01
    %90+ days
    
    
    3,242,582
    
    
    
    0.19
    %
    
    
    3,003,739
    
    
    
    0.17
    %Bankruptcy
    
    0 - 30 days
    
    
    26,625,068
    
    
    
    1.54
    %
    
    
    78,057,519
    
    
    
    4.51
    %Delinquent
    
    31 - 60 days
    
    
    5,496,529
    
    
    
    0.32
    %
    
    
    7,118,015
    
    
    
    0.41
    %61 - 90 days
    
    
    4,757,125
    
    
    
    0.27
    %
    
    
    4,889,821
    
    
    
    0.29
    %90+ days
    
    
    124,482,158
    
    
    
    7.20
    %
    
    
    71,295,525
    
    
    
    4.12
    %Foreclosure
    
    0 - 30 days
    
    
    3,991,138
    
    
    
    0.23
    %
    
    
    27,245,274
    
    
    
    1.57
    %Delinquent
    
    31 - 60 days
    
    
    1,087,908
    
    
    
    0.06
    %
    
    
    13,147,785
    
    
    
    0.76
    %61 - 90 days
    
    
    1,578,701
    
    
    
    0.09
    %
    
    
    14,989,899
    
    
    
    0.87
    %90+ days
    
    
    464,523,488
    
    
    
    26.85
    %
    
    
    415,798,277
    
    
    
    24.03
    %Total
    
    $
    1,730,041,129
    
    
    
    100.00
    %
    
    $
    1,730,041,129
    
    
    
    100.00
    %Total loans
    
    0 - 30 days
    
    $
    815,818,030
    
    
    
    47.16
    %
    
    $
    984,525,696
    
    
    
    56.91
    %
 27




---



##### Table of Contents



December 31, 2007Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %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
    %Total loans
    
    0 - 30 days
    
    $
    991,220,440
    
    
    
    51.52
    %
    
    $
    1,241,417,483
    
    
    
    64.53
    %
 28




---



##### Table of Contents



June 30, 2007Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Current
    
    0 - 30 days
    
    $
    1,094,029,367
    
    
    
    53.93
    %
    
    $
    1,240,109,741
    
    
    
    61.13
    %Delinquent
    
    31 - 60 days
    
    
    110,806,197
    
    
    
    5.46
    %
    
    
    73,629,992
    
    
    
    3.63
    %61 - 90 days
    
    
    67,199,647
    
    
    
    3.31
    %
    
    
    41,680,548
    
    
    
    2.05
    %90+ days
    
    
    219,148,122
    
    
    
    10.80
    %
    
    
    135,763,052
    
    
    
    6.69
    %Modified Loans
    
    0 - 30 days
    
    
    7,719,946
    
    
    
    0.38
    %
    
    
    9,908,989
    
    
    
    0.49
    %Delinquent
    
    31 - 60 days
    
    
    1,223,979
    
    
    
    0.06
    %
    
    
    188,995
    
    
    
    0.01
    %61 - 90 days
    
    
    667,823
    
    
    
    0.03
    %
    
    
    85,300
    
    
    
    0.00
    %90+ days
    
    
    849,551
    
    
    
    0.04
    %
    
    
    278,014
    
    
    
    0.01
    %Bankruptcy
    
    0 - 30 days
    
    
    31,576,638
    
    
    
    1.56
    %
    
    
    91,529,459
    
    
    
    4.51
    %Delinquent
    
    31 - 60 days
    
    
    6,583,052
    
    
    
    0.32
    %
    
    
    6,939,507
    
    
    
    0.34
    %61 - 90 days
    
    
    6,338,693
    
    
    
    0.31
    %
    
    
    4,992,138
    
    
    
    0.25
    %90+ days
    
    
    107,217,088
    
    
    
    5.29
    %
    
    
    48,254,368
    
    
    
    2.38
    %Foreclosure
    
    0 - 30 days
    
    
    2,148,447
    
    
    
    0.11
    %
    
    
    23,959,975
    
    
    
    1.18
    %Delinquent
    
    31 - 60 days
    
    
    625,461
    
    
    
    0.03
    %
    
    
    5,472,433
    
    
    
    0.27
    %61 - 90 days
    
    
    6,645,615
    
    
    
    0.33
    %
    
    
    15,528,917
    
    
    
    0.77
    %90+ days
    
    
    254,366,935
    
    
    
    12.54
    %
    
    
    218,825,133
    
    
    
    10.79
    %Not Boarded*
    
    
    
    
    111,513,341
    
    
    
    5.50
    %
    
    
    111,513,341
    
    
    
    5.50
    %Total
    
    $
    2,028,659,902
    
    
    
    100.00
    %
    
    $
    2,028,659,902
    
    
    
    100.00
    %Total loans
    
    0 - 30 days
    
    $
    1,135,474,398
    
    
    
    55.97
    %
    
    $
    1,365,508,164
    
    
    
    67.31
    %
 
 *
    
    Not boarded represents recently acquired loans serviced by the seller on a temporary
basis. 29




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##### Table of Contents



Notes Receivable Portfolio
  June 30, 2008
    
    
    December 31, 2007Performing loans
    
    $
    880,296,594
    
    
    $
    1,087,987,060Allowance for loan losses
    
    
    252,437,945
    
    
    
    129,967,195Nonaccretable discount*
    
    
    35,455,591
    
    
    
    61,590,526Total performing loans,
net of allowance for loan losses and
nonaccretable discount
    
    
    592,403,058
    
    
    
    896,429,339Impaired loans
    
    
    407,016,919
    
    
    
    330,212,508Allowance for loan losses
    
    
    169,855,730
    
    
    
    100,842,743Nonaccretable discount*
    
    
    64,180,667
    
    
    
    40,551,354Total impaired loans,
net of allowance for loan losses and
nonaccretable discount
    
    
    172,980,522
    
    
    
    188,818,411Total notes receivable,
net of allowance for loan losses and
nonaccretable discount
    
    
    765,383,580
    
    
    
    1,085,247,750Accretable discount*
    
    
    25,504,408
    
    
    
    26,507,403Total Notes Receivable,
net of allowance for loan losses and
accretable/nonaccretable discount
    
    $
    739,879,172
    
    
    $
    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.  30




---



##### Table of Contents



June 30, 2008
    
    
    December 31, 2007Performing Loans:Fixed rate
    
    $
    481,206,163
    
    
    $
    765,622,654Adjustable rate
    
    
    146,652,486
    
    
    
    192,397,211Total Performing Loans
    
    $
    627,858,649
    
    
    $
    958,019,865Impaired Loans:Fixed rate
    
    $
    156,968,747
    
    
    $
    143,666,475Adjustable rate
    
    
    80,192,442
    
    
    
    85,703,290Total Impaired Loans
    
    $
    237,161,189
    
    
    $
    229,369,765Total Notes
    
    $
    865,019,838
    
    
    $
    1,187,389,630Accretable discount
    
    $
    25,504,408
    
    
    $
    26,507,403Nonaccretable discount
    
    $
    99,636,258
    
    
    $
    102,141,880Total Notes Receivable,
net of allowance for loan losses
    
    $
    739,879,172
    
    
    $
    1,058,740,347
  Lien Position.
 June 30, 2008
    
    
    December 31, 2007Percentage of Total
    
    
    
    
    
    
    Percentage of TotalLien Position
    
    Principal Balance
    
    
    Principal Balance
    
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    $
    445,841,380
    
    
    
    34.63
    %
    
    $
    497,433,756
    
    
    
    35.08
    %2nd Liens
    
    
    841,472,133
    
    
    
    65.37
    %
    
    
    920,765,812
    
    
    
    64.92
    %Total
    
    $
    1,287,313,513
    
    
    
    100.00
    %
    
    $
    1,418,199,568
    
    
    
    100.00
    %
 31




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##### Table of Contents



Loan Acquisitions
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Number of loans
    
    
    3,876
    
    
    
    5,990Aggregate unpaid principal
balance at acquisition
    
    $
    311,210,405
    
    
    $
    457,506,807Purchase price
    
    $
    260,746,325
    
    
    $
    386,132,716Purchase price percentage
    
    
    84
    %
    
    
    84
    %Percentage of 1st liens
    
    
    42
    %
    
    
    45
    %Percentage of 2nd liens
    
    
    58
    %
    
    
    55
    %
  Notes Receivable Dispositions
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Sale of Performing LoansAggregate unpaid principal balance
    
    $
    22,255,982
    
    
    $
    22,255,982Gain on sale
    
    $
    31,118
    
    
    $
    31,118
 32




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##### Table of Contents



Tribecas Loan Originations
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Number of loans originated
    
    
    471
    
    
    
    851Original principal balance(1)
    
    $
    118,699,834
    
    
    $
    209,863,371Average loan amount
    
    $
    252,017
    
    
    $
    246,608Originated as fixed
    
    $
    13,890,040
    
    
    $
    29,465,540Originated as ARM(2)
    
    $
    104,809,794
    
    
    $
    180,397,831Number of loans sold
    
    
    104
    
    
    
    119Aggregate face value(3)
    
    $
    27,425,560
    
    
    $
    31,268,022Gain on sale(4)
    
    $
    197,694
    
    
    $
    200,733Gain on sale percentage
    
    
    0.72
    %
    
    
    0.64
    %
 
 (1)
    
    In the three and six months ended June 30, 2007, we originated $9.9 million and $22.1
million, respectively, of Alt-A loans.(2)
    
    Originated ARM loans are principally fixed-rate for the first two years and six-month
adjustable-rate for the remaining term.(3)
    
    Net of loans repurchased during the period; aggregate face amount of loans sold was
$32.0 million and $37.2 million, respectively, for the three and six months ended June 30,
2007.(4)
    
    Included in gain on sale for the three and six months ended June 30, 2007 are: net gain
of $132,000 on the sale of Liberty Loans; net loss of $56,000 from sales of Alt-A loans
and other loans specifically originated for sale to investors; and, a recovery of $122,000
for previously established early payment default reserves for Liberty Loans sold in 2006. Property Types of Originated Loans Held for Investment.
 Loans Held for Investmentat June 30, 2008Percentage of TotalProperty Types
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    $
    412,492,552
    
    
    
    93.17
    %Condos, co-ops, PUD dwellings
    
    
    28,408,431
    
    
    
    6.42
    %Commercial
    
    
    1,662,320
    
    
    
    0.37
    %Other
    
    
    164,314
    
    
    
    0.04
    %Total
    
    $
    442,727,617
    
    
    
    100.00
    %
 33




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##### Table of Contents



Geographic Dispersion of Originated Loans Held for Investment.
 Loans Held for Investmentat June 30, 2008Principal
    
    
    Percentage of TotalLocation
    
    Balance
    
    
    Principal BalanceNew York
    
    $
    135,796,813
    
    
    
    30.67
    %New Jersey
    
    
    125,004,203
    
    
    
    28.23
    %Pennsylvania
    
    
    41,637,615
    
    
    
    9.40
    %Florida
    
    
    25,710,502
    
    
    
    5.81
    %Maryland
    
    
    20,447,729
    
    
    
    4.62
    %Massachusetts
    
    
    20,000,277
    
    
    
    4.52
    %Connecticut
    
    
    16,419,771
    
    
    
    3.71
    %Virginia
    
    
    15,393,809
    
    
    
    3.48
    %California
    
    
    10,781,513
    
    
    
    2.43
    %Georgia
    
    
    4,857,880
    
    
    
    1.10
    %All Others
    
    
    26,677,505
    
    
    
    6.03
    %Total
    
    $
    442,727,617
    
    
    
    100.00
    %
 34




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##### Table of Contents



Delinquency .
  35




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##### Table of Contents



June 30, 2008Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Current
    
    0  30 days
    
    $
    110,166,273
    
    
    
    24.88
    %
    
    $
    137,629,147
    
    
    
    31.09
    %Delinquent
    
    31  60 days
    
    
    32,814,344
    
    
    
    7.41
    %
    
    
    25,154,005
    
    
    
    5.68
    %61  90 days
    
    
    12,789,241
    
    
    
    2.89
    %
    
    
    7,821,332
    
    
    
    1.76
    %90+ days
    
    
    16,558,519
    
    
    
    3.74
    %
    
    
    1,723,893
    
    
    
    0.39
    %Modified Loans
    
    0  30 days
    
    
    47,350,695
    
    
    
    10.70
    %
    
    
    47,350,695
    
    
    
    10.70
    %Delinquent
    
    31  60 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61  90 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90+ days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bankruptcy
    
    0  30 days
    
    
    162,713
    
    
    
    0.04
    %
    
    
    12,452,083
    
    
    
    2.81
    %Delinquent
    
    31  60 days
    
    
    56,764
    
    
    
    0.01
    %
    
    
    2,415,475
    
    
    
    0.55
    %61  90 days
    
    
    
    
    
    
    
    
    
    
    1,738,914
    
    
    
    0.39
    %90+ days
    
    
    41,098,692
    
    
    
    9.28
    %
    
    
    24,711,697
    
    
    
    5.58
    %Foreclosure*
    
    0  30 days
    
    
    2,270,658
    
    
    
    0.51
    %
    
    
    13,038,913
    
    
    
    2.94
    %Delinquent
    
    31  60 days
    
    
    782,668
    
    
    
    0.18
    %
    
    
    5,246,960
    
    
    
    1.19
    %61  90 days
    
    
    1,280,506
    
    
    
    0.29
    %
    
    
    7,423,138
    
    
    
    1.68
    %90+ days
    
    
    177,396,544
    
    
    
    40.07
    %
    
    
    156,021,365
    
    
    
    35.24
    %Total
    
    $
    442,727,617
    
    
    
    100.00
    %
    
    $
    442,727,617
    
    
    
    100.00
    %Total loans
    
    0  30 days
    
    $
    159,950,339
    
    
    
    36.13
    %
    
    $
    210,470,838
    
    
    
    47.54
    %
 
 *
    
    $181.7 million of loans were in various stages of the foreclosure process; our servicing
practice for this portfolio is to move loans into our foreclosure collection process at an
early stage of delinquency. 36




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##### Table of Contents



December 31, 2007Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %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
    %Total loans
    
    0  30 days
    
    $
    202,367,860
    
    
    
    40.02
    %
    
    $
    280,021,783
    
    
    
    55.38
    %
 
 *
    
    $181.7 million of loans were in various stages of the foreclosure process; our servicing
practice for this portfolio is to move loans into our foreclosure collection process at an
early stage of delinquency. 37




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##### Table of Contents



June 30, 2007Contractual Delinquency
    
    
    Recency DelinquencyDays Past Due
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Current
    
    0  30 days
    
    $
    254,277,452
    
    
    
    50.73
    %
    
    $
    298,863,298
    
    
    
    59.63
    %Delinquent
    
    31  60 days
    
    
    30,638,392
    
    
    
    6.11
    %
    
    
    22,418,230
    
    
    
    4.47
    %61  90 days
    
    
    17,045,315
    
    
    
    3.40
    %
    
    
    5,914,581
    
    
    
    1.18
    %90+ days
    
    
    46,922,792
    
    
    
    9.36
    %
    
    
    21,687,842
    
    
    
    4.32
    %Modified Loans
    
    0  30 days
    
    
    284,455
    
    
    
    0.06
    %
    
    
    284,455
    
    
    
    0.06
    %Delinquent
    
    31  60 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61  90 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90+ days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bankruptcy
    
    0  30 days
    
    
    138,857
    
    
    
    0.03
    %
    
    
    4,789,041
    
    
    
    0.96
    %Delinquent
    
    31  60 days
    
    
    
    
    
    
    
    
    
    
    1,275,392
    
    
    
    0.25
    %61  90 days
    
    
    55,297
    
    
    
    0.01
    %
    
    
    1,402,811
    
    
    
    0.28
    %90+ days
    
    
    19,179,533
    
    
    
    3.83
    %
    
    
    11,906,443
    
    
    
    2.38
    %Foreclosure*
    
    0  30 days
    
    
    845,930
    
    
    
    0.17
    %
    
    
    16,030,034
    
    
    
    3.20
    %Delinquent
    
    31  60 days
    
    
    466,822
    
    
    
    0.09
    %
    
    
    3,828,799
    
    
    
    0.76
    %61  90 days
    
    
    5,554,033
    
    
    
    1.11
    %
    
    
    12,963,977
    
    
    
    2.59
    %90+ days
    
    
    125,789,153
    
    
    
    25.10
    %
    
    
    99,833,128
    
    
    
    19.92
    %Total
    
    $
    501,198,031
    
    
    
    100.00
    %
    
    $
    501,198,031
    
    
    
    100.00
    %Total loans
    
    0  30 days
    
    $
    255,546,694
    
    
    
    50.99
    %
    
    $
    319,966,828
    
    
    
    63.84
    %
 
 *
    
    $132.7 million of loans were in various stages of the foreclosure process; our servicing
practice for this portfolio is to move loans into our foreclosure collection process at an
early stage of delinquency.  38




---



##### Table of Contents



Other Real Estate Owned
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Other real estate owned
    
    $
    61,843,230
    
    
    $
    33,142,484
    
    
    $
    61,843,230
    
    
    $
    33,142,484OREO as a percentage of total assets
    
    
    4.78
    %
    
    
    1.67
    %
    
    
    4.78
    %
    
    
    1.67
    %OREO sold
    
    $
    9,381,848
    
    
    $
    7,574,705
    
    
    $
    16,650,847
    
    
    $
    15,927,485Gain on sale
    
    $
    291,891
    
    
    $
    117,632
    
    
    $
    382,707
    
    
    $
    238,807
 
 Results of Operations
 Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
 Overview.
  Revenues.
 39




---



##### Table of Contents



Operating Expenses.
 40




---



##### Table of Contents



41




---



##### Table of Contents



Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
 Overview.
  42




---



##### Table of Contents



Revenues.
      43




---



##### Table of Contents



Operating Expenses.
   44




---



##### Table of Contents



Liquidity and Capital Resources
 General
  45




---



##### Table of Contents



Short-term Investments.
 Cost of Funds.
 Under the terms of creditIn accordance with the
    
    
    agreements excludedterms of the Forbearance
    
    
    from the ForbearanceAgreements as amended
    
    
    Agreements as amendedLIBOR plus 2.25%
    
    $
    935,832,674
    
    
    $
    LIBOR plus 2.75%
    
    
    416,713,418
    
    
    
    0% (fixed)*
    
    
    125,000,000
    
    
    
    FHLB one-month LIBOR advance rate plus 2.60%
    
    
    
    
    
    
    16,938,709FHLB one-month LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    24,990,476$
    1,477,546,092
    
    
    $
    41,929,185
 
 *
    
    Interest of 20% begins to accrue after the Franklin Tranche A debt, $547.6 million as of June
30, 2008, is paid off in full.  46




---



##### Table of Contents



Cash Flow from Operating, Investing and Financing Activities
       47




---



##### 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.
 48




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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;
 49




---



##### Table of Contents




    
    to prepay Unrestructured Debt (excluding that owed to BOS);
    
    in the case of Franklin Credit, to repay Tranche D advances, any letter of credit
exposure, and any obligations in respect of any interest rate hedge agreements with the
bank;
    
    in the case of Franklin Credit, 90% of the available cash flow to repay interest and
then principal of the Tranche C advances if Franklin Credit is acting as servicer of
the underlying collateral, or 100% otherwise; and,
    
    in the case of Franklin Credit and Tribeca, to pay any advances then outstanding in
respect of the others indebtedness to the bank, other than for Unrestructured Debt.
 Covenants; Events of Default.
 
    
    the Companys reimbursable expenses in the ordinary course of business during each
of the first two months after the date of the agreement will not exceed $2.5 million,
excluding reimbursement of certain bank expenses after the date of the Restructuring,
and thereafter, an amount provided for in an approved budget;
    
    the Company will not originate or acquire mortgage loans or other assets, perform
due diligence or servicing, broker loans, or participate in off-balance sheet joint
ventures and special purpose vehicles, without the prior consent of the bank;
    
    the Company will use its best efforts to obtain interest rate hedges acceptable to
the bank in respect of the $1 billion of Tranche A indebtedness;
    
    the Company will not make certain restricted payments to its stockholders or certain
other related parties;
    
    the Company will not engage in certain transactions with affiliates;
    
    the Company will not incur additional indebtedness other than trade payables and
subordinated indebtedness;
    
    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.
  50




---



##### Table of Contents



Servicing.
 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.
 51




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##### Table of Contents



Recent Events  Forbearance Agreements
 August 2008 Modification to Forbearance Agreements
  Unrestructured Debt
  Master Credit Facilities  Term Loans
  52




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##### Table of Contents



General.
  Interest Rates and Fees.
 For Loans FundedPrior to July 1, 2005
    
    On or After July 1, 2005If the 30-day advance rate is
    
    the applicable margin is
    
    the applicable margin isLess 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
  If the 30-day advance rate is
    
    the applicable margin isLess than 2.26%
    
    300 basis points2.26 to 4.50%
    
    260 basis pointsGreater than 4.50%
    
    235 basis points
 53




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##### Table of Contents



If the 30-day advance rate is
    
    the applicable margin isLess than 2.26%
    
    300 basis points2.26 to 4.50%
    
    225 basis pointsGreater than 4.50%
    
    200 basis points
  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 is
    
    the applicable margin is
    
    the applicable margin is
    
    the applicable margin isLess than 2.26%
    
    300 basis points
    
    300 basis points
    
    300 basis points2.26 to 4.50%
    
    275 basis points
    
    225 basis points
    
    260 basis pointsGreater than 4.50%
    
    250 basis points
    
    200 basis points
    
    235 basis points
  Principal; Prepayments; Termination of Commitments .
  Covenants; Events of Default.
 Security .
 54




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##### Table of Contents



Bank of Scotland Term Loan
  If the 30-day advance rate is
    
    the applicable margin isLess than 2.26%
    
    300 basis points2.26 to 4.50%
    
    275 basis pointsGreater than 4.50%
    
    250 basis points
  Warehouse Facilities
 Tribeca Warehouse .
 Flow Warehouse .
 55




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Interest Rate Caps
    Interest Rate Caps
    
    Notional Amount
    
    
    Expiration Date

    
    Premium Paid
    
    
    Fair ValueCap 1
    
    $
    200,000,000
    
    
    September 30, 2008
    
    $
    102,000
    
    
    $
    Cap 2
    
    
    400,000,000
    
    
    September 30, 2008
    
    
    90,000
    
    
    
    Total
    
    $
    600,000,000
    
    
    
    
    
    
    $
    192,000
    
    
    $
    
 Interest Rate Swaps
    56




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Notional Amount
    
    
    Term
    
    Fixed Rate
    
    
    Estimated Fair Value*$
    220,000,000
    
    
    1 year
    
    
    2.62
    %
    
    $
    217,521390,000,000
    
    
    2 years
    
    
    2.79
    %
    
    
    2,733,960275,000,000
    
    
    3 years
    
    
    3.47
    %
    
    
    1,488,24370,000,000
    
    
    3 years
    
    
    3.11
    %
    
    
    901,56745,000,000
    
    
    4 years
    
    
    3.43
    %
    
    
    699,058$
    1,000,000,000
    
    
    
    
    
    
    
    
    $
    6,040,349
 
 *
    
    Determined in accordance with SFAS 157 based upon a Level 2 valuation methodology.  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
  Interest Rate Risk
   57




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Real Estate Risk
  58




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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
  59




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##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  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.
 
 ITEM 1A. RISK FACTORS
  Stockholders Deficit
  60




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##### Table of Contents



Licenses to Service Loans
   Delisting  The Nasdaq Capital Market
  61




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Risks Related to Our Business
 
    
    We may experience higher loan losses than we have reserved for in our financial statements.
    
    A prolonged economic slowdown or a lengthy or severe recession could harm our operations,
particularly if it results in a decline in the real estate market.
    
    Our credit facilities require us to observe certain covenants, and our failure to satisfy
such covenants could render us insolvent.
    
    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 May 2009.
    
    If we do not comply with certain minimum servicing standards in the Forbearance Agreements
with the bank, the bank can transfer our rights as servicer to a third party.
    
    Our ability to fund operating expenses depends on our principal lender continuing to
provide an adequate operating allowance.
    
    Our business is sensitive to, and can be materially affected by, changes in interest rates.
    
    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.
    
    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.
    
    A significant amount of our loans held for portfolio are secured by property in California,
New York, New Jersey and Florida, and our operations could be harmed by economic downturns or
other adverse events in these states.
    
    We may not be adequately protected against the risks inherent in subprime residential
mortgage loans.
    
    A number of our second lien mortgage loans are subordinated to ARM or interest-only
mortgages that may be subject to monthly payment increases, which may result in delinquencies
and increase our risk of loss on these loans.
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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.
    
    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 in 2006 of certain previously issued financial statements.
    
    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, or finance non-prime residential mortgage loans, which
could adversely impact our earnings.
    
    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.
    
    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.
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
    
    We are subject to reputational risks from negative publicity concerning the subprime
mortgage industry.
    
    We are subject to significant legal and reputational risks and expenses under federal and
state laws concerning privacy, use and security of customer information.
    
    If many of our borrowers become subject to the Servicemembers Civil Relief Act of 2003,
which on July 30, 2008, was amended by the Housing and Economic Recovery Act of 2008 to
temporarily enhance protections for servicemembers relating to mortgages and mortgage
foreclosures until December 31, 2010, by extending the protection period and stay of
proceedings from 90 days to 9 months and extending the interest rate limitation on mortgages
from the period of military service to the period of military service and one year thereafter,
our cash flows and interest income may be adversely affected.
    
    Legislative action to provide mortgage relief to consumers, including our borrowers, may
negatively impact our business.
 Risks Related to Our Securities
 
    
    Thomas J. Axon effectively controls our company, substantially reducing the influence of
our other stockholders.
    
    We expect to be delisted from The Nasdaq Stock Market, in which case the price and
liquidity of our common stock and our ability to access the capital markets would be adversely
affected.
    
    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.
    
    Various factors unrelated to our performance may cause the market price of our common stock
to become volatile, which could harm our ability to access the capital markets in the future.
    
    Future sales of our common stock may depress our stock price.
    
    Compliance with the rules of the market in which our common stock trades and proposed and
recently enacted changes in securities laws and regulations are likely to increase our costs.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  64




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Election of Directors
 Director
    
    For
    
    Withhold
    
    Abstain
    
    Not Voted
    
    TotalThomas J. Axon
    
    
    4,574,229
    
    
    
    605
    
    
    
    1,130
    
    
    
    3,423,314
    
    
    
    7,999,278Allan R. Lyons
    
    
    4,574,229
    
    
    
    605
    
    
    
    1,130
    
    
    
    3,423,314
    
    
    
    7,999,278
 Independent Registered Public Accountants
 For
    
    Against
    
    Abstain
    
    Not Voted
    
    Total4,574,829
    
    
    
    1,135
    
    3,423,314
    
    7,999,278
 
 ITEM 5. OTHER INFORMATION
 Market Information
   65




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ITEM 6. EXHIBITS
 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, 2005.10.64*
    
    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, 2008.10.65*
    
    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, 2008.10.66*+
    
    Loan Servicing Agreement, dated May 28, 2008, by and
between Franklin Credit Management Corporation and Bosco
Credit LLC.10.67*
    
    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.10.68*
    
    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.10.69*
    
    Pledge, Assignment and Security Agreement, dated August 15,
2008, by Franklin Credit Management Corporation in favor of
The Huntington National Bank.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.+
    
    Confidential treatment has been requested for certain portions of this exhibit pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934. In accordance with Rule 24b-2,
these confidential portions have been omitted from this exhibit and filed separately with
the Commission. 66




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SIGNATURES
   FRANKLIN CREDIT MANAGEMENT CORPORATIONBy:
    /s/ ALEXANDER GORDON JARDINAlexander Gordon JardinChief Executive Officer  Signature
    
    Title
    
    Date/s/ ALEXANDER GORDON JARDIN

Alexander Gordon Jardin
(Principal Executive Officer)
    
    Chief Executive Officer
    
    August 19, 2008/s/ PAUL D. COLASONO

Paul D. Colasono
(Principal Financial Officer)
    
    Executive Vice President and
Chief Financial Officer
    
    August 19, 2008
 67