##### 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, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-17771
 FRANKLIN CREDIT HOLDING CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    26-3104776
(IRS Employer
Identification No.)101 Hudson Street 
Jersey City, New Jersey
    
    07302(Address of Principal 
Executive Offices)
    
    (Zip code)
 (201) 604-1800
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets at June 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and six months ended
June 30, 2009 and June 30, 2008
    
    
    4Consolidated Statement of Changes in Stockholders (Deficit)
for the six months ended June 30, 2009
    
    
    5Consolidated Statements of Cash Flows for the six months ended
June 30, 2009 and June 30, 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    22Application of Critical Accounting Policies and Estimates
    
    
    22Portfolio Characteristics
    
    
    23Results of Operations
    
    
    28Liquidity and Capital Resources
    
    
    36Borrowings
    
    
    38Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 4T. Controls and Procedures
    
    
    51PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    52Item 1A. Risk Factors
    
    
    52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3. Defaults Upon Senior Securities
    
    
    52Item 4. Submission of Matters to a Vote of Security Holders
    
    
    52Item 5. Other Information
    
    
    53Item 6. Exhibits
    
    
    54SIGNATURES
    
    
    55Exhibit 10.100Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  June 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCash and cash equivalents
    
    $
    13,276,648
    
    
    $
    21,426,777Restricted cash
    
    
    1,271,695
    
    
    
    27,890,706Investment in REIT securities
    
    
    477,316,409
    
    
    
    Investment in trust certificates at fair value
    
    
    82,472,492
    
    
    
    Mortgage loans and real estate held for sale
    
    
    410,772,828
    
    
    
    Notes Receivable:Principal
    
    
    
    
    
    
    1,021,648,291Purchase discount
    
    
    
    
    
    
    (9,777,475
    )Allowance for loan losses
    
    
    
    
    
    
    (471,093,159
    )Net notes receivable
    
    
    
    
    
    
    540,777,657Notes receivable held for sale
    
    
    3,954,922
    
    
    
    Originated loans held for investment:Principal, net of deferred fees and costs
    
    
    
    
    
    
    391,704,319Allowance for loan losses
    
    
    
    
    
    
    (49,876,092
    )Originated loans held for investment, net
    
    
    
    
    
    
    341,828,227Accrued interest receivable
    
    
    47,606
    
    
    
    10,055,241Other real estate owned
    
    
    
    
    
    
    60,748,390Deferred financing costs, net
    
    
    7,369,087
    
    
    
    7,824,432Other receivables
    
    
    9,636,090
    
    
    
    7,028,334Building, furniture and equipment, net
    
    
    1,861,287
    
    
    
    2,042,436Income tax receivable
    
    
    2,047,635
    
    
    
    2,126,590Other assets
    
    
    927,880
    
    
    
    634,652Total assets
    
    $
    1,010,954,579
    
    
    $
    1,022,383,442LIABILITIES AND STOCKHOLDERS (DEFICIT)Liabilities:Notes payable, net of debt discount of $190,911 at June 30, 2009
and $205,976 at December 31, 2008
    
    $
    1,366,971,035
    
    
    $
    1,442,126,964Financing agreements
    
    
    1,000,000
    
    
    
    1,958,011Nonrecourse liability
    
    
    410,772,828
    
    
    
    Accounts payable and accrued expenses
    
    
    8,130,097
    
    
    
    15,056,870Terminated derivative liability
    
    
    8,200,000
    
    
    
    Derivative liabilities, at fair value
    
    
    14,771,242
    
    
    
    27,753,436Total liabilities
    
    
    1,809,845,202
    
    
    
    1,486,895,281Commitments and ContingenciesStockholders (Deficit):Preferred stock, $0.01 par value; authorized 3,000,000;
issued and outstanding: 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, 2009 and 8,025,295 at December 31, 2008
    
    
    21,804,659
    
    
    
    23,383,120Noncontrolling interest in subsidiary
    
    
    1,710,490
    
    
    
    Accumulated other comprehensive (loss)
    
    
    (20,157,137
    )
    
    
    (27,753,436
    )Retained (deficit)
    
    
    (802,248,635
    )
    
    
    (460,141,523
    )Total stockholders (deficit)
    
    
    (798,890,623
    )
    
    
    (464,511,839
    )Total liabilities and stockholders (deficit)
    
    $
    1,010,954,579
    
    
    $
    1,022,383,442
   3




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Interest income
    
    $
    16,676,815
    
    
    $
    26,605,598
    
    
    $
    33,131,140
    
    
    $
    58,925,728Dividend income
    
    
    10,629,299
    
    
    
    
    
    
    
    10,629,299
    
    
    
    Purchase discount earned
    
    
    
    
    
    
    805,409
    
    
    
    392,127
    
    
    
    1,586,750Gain on recovery from contractual loan purchase rights
    
    
    30,550,000
    
    
    
    
    
    
    
    30,550,000
    
    
    
    (Loss) on mortgage loans and real estate held for sale
    
    
    
    
    
    
    
    
    
    
    (282,593,653
    )
    
    
    (Loss) on valuation of investments in trust certificates
and notes receivable held for sale
    
    
    
    
    
    
    
    
    
    
    (62,651,940
    )
    
    
    Fair valuation adjustments
    
    
    (14,393,966
    )
    
    
    
    
    
    
    (14,393,966
    )
    
    
    Gain on sale of other real estate owned
    
    
    
    
    
    
    291,891
    
    
    
    374,344
    
    
    
    382,707Servicing fees and other income
    
    
    1,717,609
    
    
    
    3,175,150
    
    
    
    4,227,166
    
    
    
    5,197,873Total revenues/(losses)
    
    
    45,179,757
    
    
    
    30,878,048
    
    
    
    (280,335,483
    )
    
    
    66,093,058Operating Expenses:Interest expense
    
    
    17,117,236
    
    
    
    18,902,627
    
    
    
    34,800,392
    
    
    
    41,784,636Collection, general and administrative
    
    
    6,905,713
    
    
    
    12,305,127
    
    
    
    25,598,708
    
    
    
    21,928,296Provision for loan losses
    
    
    
    
    
    
    280,491,641
    
    
    
    169,479
    
    
    
    289,147,466Amortization of deferred financing costs
    
    
    288,577
    
    
    
    318,126
    
    
    
    455,345
    
    
    
    573,965Depreciation
    
    
    157,892
    
    
    
    297,676
    
    
    
    314,540
    
    
    
    614,302Total expenses
    
    
    24,469,418
    
    
    
    312,315,197
    
    
    
    61,338,464
    
    
    
    354,048,665Income/(loss) before provision for income taxes
    
    
    20,710,339
    
    
    
    (281,437,149
    )
    
    
    (341,673,947
    )
    
    
    (287,955,607
    )Income tax
    
    
    433,165
    
    
    
    
    
    
    
    433,165
    
    
    
    Net income/(loss)
    
    $
    20,277,174
    
    
    $
    (281,437,149
    )
    
    $
    (342,107,112
    )
    
    $
    (287,955,607
    )Net income/(loss) per common share:Basic
    
    $
    2.53
    
    
    $
    (35.26
    )
    
    $
    (42.78
    )
    
    $
    (36.10
    )Diluted
    
    $
    2.53
    
    
    $
    (35.26
    )
    
    $
    (42.78
    )
    
    $
    (36.10
    )Weighted average number of shares outstanding:Basic
    
    
    8,000,295
    
    
    
    7,981,545
    
    
    
    7,997,170
    
    
    
    7,975,920Diluted
    
    
    8,000,295
    
    
    
    7,981,545
    
    
    
    7,997,170
    
    
    
    7,975,920
   4




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FRANKLIN CREDIT MANAGEMENT HOLDING AND SUBSIDIARIES
 
   AccumulatedCommon Stock and
    
    
    Other
    
    
    NoncontrollingAdditional Paid-in Capital
    
    
    Comprehensive
    
    
    Interest
    
    
    RetainedShares
    
    
    Amount
    
    
    Loss
    
    
    in Subsidiary
    
    
    (Deficit)
    
    
    TotalBALANCE, JANUARY 1, 2009
    
    
    8,025,295
    
    
    $
    23,383,120
    
    
    $
    (27,753,436
    )
    
    $
    
    
    
    $
    (460,141,523
    )
    
    $
    (464,511,839
    )Stock-based compensation
    
    
    
    
    
    
    132,029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,029Transfer of noncontrolling interest in subsidiary
    
    
    
    
    
    
    (1,710,490
    )
    
    
    
    
    
    
    1,710,490
    
    
    
    
    
    
    
    Amortization  unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    7,596,299
    
    
    
    
    
    
    
    
    
    
    
    7,596,299Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (342,107,112
    )
    
    
    (342,107,112
    )BALANCE, JUNE 30, 2009 (UNAUDITED)
    
    
    8,025,295
    
    
    $
    21,804,659
    
    
    $
    (20,157,137
    )
    
    $
    1,710,490
    
    
    $
    (802,248,635
    )
    
    $
    (798,890,623
    )
    5




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
   Six Months Ended June 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)
    
    $
    (342,107,112
    )
    
    $
    (287,955,607
    )Adjustments to reconcile income to net cash provided by/(used in) operating activities:Gain on sale of other real estate owned
    
    
    (374,344
    )
    
    
    (382,707
    )Depreciation
    
    
    314,540
    
    
    
    614,302Amortization of deferred costs and fees on originated loans
    
    
    48,215
    
    
    
    (296,848
    )Loss on mortgage loans and real estate held for sale
    
    
    282,593,653
    
    
    
    Fair valuation adjustments
    
    
    14,393,966
    
    
    
    Loss on valuation of investment in trust certificates and notes receivable held for sale
    
    
    62,651,940
    
    
    
    Principal collections on mortgage loans held for sale
    
    
    28,992,711
    
    
    
    Proceeds from sale of real estate held for sale
    
    
    22,251,806
    
    
    
    Amortization of deferred financing costs
    
    
    455,345
    
    
    
    573,965Amortization of debt discount and success fees
    
    
    15,065
    
    
    
    15,279Non-cash compensation
    
    
    132,029
    
    
    
    141,394Purchase discount earned
    
    
    (392,127
    )
    
    
    (1,586,750
    )Provision for loan losses
    
    
    169,479
    
    
    
    289,147,466Changes in operating assets and liabilities:Accrued interest receivable
    
    
    1,611,839
    
    
    
    2,956,661Other receivables
    
    
    (9,589,412
    )
    
    
    (993,550
    )Income tax receivable
    
    
    78,955
    
    
    
    (400,736
    )Paid in kind interest
    
    
    6,938,945
    
    
    
    Other assets
    
    
    (293,227
    )
    
    
    (415,414
    )Transfer to fixed assets
    
    
    (127,190
    )
    
    
    Accounts payable and accrued expenses
    
    
    (12,312,666
    )
    
    
    (6,632,789
    )Terminated derivative liability
    
    
    8,200,000
    
    
    
    Net cash provided by/(used in) operating activities
    
    
    63,652,410
    
    
    
    (5,215,334
    )CASH FLOWS FROM INVESTING ACTIVITIES:(Increase)/decrease in restricted cash
    
    
    26,619,011
    
    
    
    3,789,059Principal collections on notes receivable
    
    
    10,813,027
    
    
    
    49,731,473Principal collections on loans held for investment
    
    
    5,857,079
    
    
    
    40,126,149Investment in short-term securities
    
    
    
    
    
    
    (69,308
    )Putback of acquired notes receivable
    
    
    
    
    
    
    394,893Proceeds from sale of other real estate owned
    
    
    19,227,015
    
    
    
    17,033,555Purchase of building, furniture and equipment
    
    
    (6,201
    )
    
    
    (78,874
    )Net cash provided by investing activities
    
    
    62,509,931
    
    
    
    110,926,947CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments of notes payable
    
    
    (82,109,940
    )
    
    
    (109,294,886
    )Proceeds from financing agreements
    
    
    2,017,052
    
    
    
    291,980Principal payments of financing agreements
    
    
    (2,975,063
    )
    
    
    (397,528
    )Payments on nonrecourse liability
    
    
    (51,244,519
    )
    
    
    Net cash (used in) financing activities
    
    
    (134,312,470
    )
    
    
    (109,400,434
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (8,150,129
    )
    
    
    (3,688,821
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    21,426,777
    
    
    
    18,266,066CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    13,276,648
    
    
    $
    14,577,245SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    23,349,263
    
    
    $
    41,784,636Cash payments for taxes
    
    $
    268,154
    
    
    $
    400,736NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer from notes receivable and loans held for investment to OREO
    
    $
    20,566,413
    
    
    $
    41,886,259
   6




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  1. BUSINESS
 Overview
 March 2009 Restructuring
     7




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Going Concern Uncertainty  Franklin Holding
    8




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Operating Losses and Stockholders Deficit
   Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  9




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Licenses to Service Loans and December 2008 Corporate Reorganization
     10




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Franklins Business
    11




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Loan Servicing
   12




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##### Table of Contents



Due Diligence Services
  Financing
   Corporate History
   13




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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Investment in REIT Securities
  14




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Investment in Trust Certificates
 Mortgage Loans and Real Estate Held for Sale
 Nonrecourse Liability
 Fair Valuation Adjustments
  15




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Three Months EndedJune 30, 2009Valuation (loss) on OREO sold
    
    $
    (11,564,907
    )Valuation (loss) on mortgage loans and OREO
    
    
    (17,046,415
    )Valuation gain on nonrecourse liability
    
    
    16,368,732Other
    
    
    (2,151,376
    )(Loss) on valuation
    
    $
    (14,393,966
    )
 Notes Receivable Held for Sale 
 Income Recognition on Investment in Trust Certificates and Mortgage Loans and Real Estate Held
for Sale
 Notes Receivable and Income Recognition
   16




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Originated Loans Held for Investment
  Allowance for Loan Losses
  17




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Three Months Ended June 30,2009
    
    
    2008Allowance for loan losses, beginning of period
    
    $
    
    
    
    $
    251,626,987Provision for loan losses
    
    
    
    
    
    
    262,420,799Loans transferred to OREO
    
    
    
    
    
    
    (4,273,245
    )Loans charged off
    
    
    
    
    
    
    (47,373,393
    )Loans transferred to Huntington
and loans exchanged for trust certificates and retained
    
    
    
    
    
    
    Loans transferred to loans held for sale
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    (31,980
    )Allowance for loan losses, end of period
    
    $
    
    
    
    $
    462,369,168
 Six Months Ended June 30,2009
    
    
    2008Allowance for loan losses, beginning of period
    
    $
    520,969,251
    
    
    $
    254,661,653Provision for loan losses
    
    
    169,479
    
    
    
    267,587,175Loans transferred to OREO
    
    
    (6,517,919
    )
    
    
    (6,713,115
    )Loans charged off
    
    
    (14,029,345
    )
    
    
    (53,058,255
    )Loans transferred to Huntington
and loans exchanged for trust certificates and retained
    
    
    (481,453,374
    )
    
    
    Loans transferred to loans held for sale
    
    
    (17,435,075
    )
    
    
    Other, net
    
    
    (1,703,017
    )
    
    
    (108,290
    )Allowance for loan losses, end of period
    
    $
    
    
    
    $
    462,369,168
  Derivatives Accounting for Derivative Instruments and Hedging Activities
   18




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19




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Fair Value Measurements
 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 3
    
    
    Level 3Interest-rate swaps
    
    $
    
    
    
    $
    (14,771,242
    )
    
    $
    
    
    
    $
    Investment in REIT securities
    
    
    
    
    
    
    
    
    
    
    472,413,331
    
    
    
    Investment in trust certificates
    
    
    
    
    
    
    
    
    
    
    82,472,492
    
    
    
    Nonrecourse liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (410,772,828
    )Total
    
    $
    
    
    
    $
    (14,771,242
    )
    
    $
    554,885,823
    
    
    $
    (410,772,828
    )
  20




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Balance, January 1, 2009
    
    $
    
    
    
    $
    Additions
    
    
    623,602,529
    
    
    
    (477,316,409
    )Total recognized unrealized (losses)/gains
    
    
    (54,753,531
    )
    
    
    16,368,733Transfer in/(out)
    
    
    (5,625,114
    )
    
    
    Distributions/payments
    
    
    (8,338,061
    )
    
    
    50,174,828Balance, June 30, 2009
    
    $
    554,885,823
    
    
    $
    (410,772,828
    )
   Level 1
    
    
    Level 2
    
    
    Level 3Mortgage loans and real estate held for sale
    
    $
    
    
    
    $
    
    
    
    $
    410,772,828
 Recent Developments
 Unrestructured Debt
    21




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
 Safe Harbor Statements.
 
 Application of Critical Accounting Policies and Estimate
   22




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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.  23




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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 .
   24




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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
    %
    25




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##### Table of Contents



Notes Receivable Portfolio
   December 31, 2008Performing loans
    
    $
    528,953,209Allowance for loan losses
    
    
    130,724,698Nonaccretable discount*
    
    
    25,277,808Total performing loans, net
allowance for loan losses and nonaccretable discount
    
    
    372,950,703Impaired loans
    
    
    615,159,200Allowance for loan losses
    
    
    340,368,461Nonaccretable discount*
    
    
    72,325,558Total impaired loans, net
allowance for loan losses and nonaccretable discount
    
    
    202,465,181Total notes receivable, net
allowance for loan losses and nonaccretable discount
    
    
    575,415,884Accretable discount*
    
    
    24,860,752Total notes receivable, net
allowance for loan losses and
accretable/nonaccretable discount
    
    $
    550,555,132
 
 *
    
    Represents purchase discount not reflected on the face of the balance sheet in
accordance with 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.   26




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##### Table of Contents



December 31, 2008Performing Loans:Fixed rate
    
    $
    325,799,144Adjustable rate
    
    
    72,429,367Total Performing Loans
    
    $
    398,228,511Impaired Loans:Fixed rate
    
    $
    162,504,488Adjustable rate
    
    
    112,286,251Total Impaired Loans
    
    $
    274,790,739Total Notes
    
    $
    673,019,250Accretable discount
    
    $
    24,860,752Nonaccretable discount
    
    $
    97,603,366Total Notes Receivable,
net of allowance for loan losses
    
    $
    550,555,132
  Lien Position.
 December 31, 2008Percentage of TotalLien Position
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    $
    390,020,158
    
    
    
    34.09
    %2nd Liens
    
    
    754,092,251
    
    
    
    65.91
    %Total
    
    $
    1,144,112,409
    
    
    
    100.00
    %
  27




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##### Table of Contents



Other Real Estate Owned
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Other real estate owned
    
    $
    
    
    
    $
    61,843,230
    
    
    $
    
    
    
    $
    61,843,230OREO as a percentage of total assets
    
    
    
    
    
    
    4.78
    %
    
    
    
    
    
    
    4.78
    %OREO sold (prior to the Restructuring)
    
    $
    
    
    
    $
    9,381,848
    
    
    $
    18,852,671
    
    
    $
    16,650,847Gain on sale
    
    $
    
    
    
    $
    291,891
    
    
    $
    374,344
    
    
    $
    382,707
  
 Results of Operation
 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Overview.
   28




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Revenues.
        29




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Operating Expenses.
    30




---



##### Table of Contents



Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Overview.
  31




---



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Revenues.
      32




---



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Operating Expenses.
  33




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34




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##### Table of Contents



35




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##### Table of Contents



Franklin Credit Management Corporation (FCMC)
    
 Liquidity and Capital Resources
 General
     36




---



##### Table of Contents



Short-term Investments.
 Cost of Funds.
 Under the terms of theForbearance Agreementsand credit agreementIn accordance with the
    
    
    excludedterms of the Restructuring
    
    
    from the RestructuringAgreements
    
    
    AgreementsFHLB 30-day LIBOR advance rate plus 2.60%
    
    $
    
    
    
    $
    16,278,232FHLB 30-day LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    23,970,620LIBOR plus 2.25%
    
    
    787,485,730
    
    
    
    LIBOR plus 2.75%
    
    
    409,681,025
    
    
    
    15.00%
    
    
    129,746,339
    
    
    
    $
    1,326,913,094
    
    
    $
    40,248,852
  Cash Flow from Operating, Investing and Financing Activities
    37




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##### Table of Contents



Borrowings
  Restructuring Agreements with Lead Lending Bank
   38




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##### Table of Contents



March 2009 Restructuring
       39




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##### Table of Contents



Background.
 
    
    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;
 
    
    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.
  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 $477.3 million (the REIT
Securities). The preferred membership interests have a liquidation value of $100,000
per unit and an annual cumulative dividend rate of 9% of such liquidation value. Any
dividends on the preferred shares shall be payable only out of funds legally available
for the payment thereof;
  40




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##### Table of Contents




    
    principal and interest payments in respect of the Legacy Credit Agreement are only
due and payable to the extent of cash flow of the Company, which cash flow would
include dividends declared and paid in respect of the REIT Securities or any other
assets of the Company, other than the retained interest in FCMC (as discussed below);
and
 
    
    the Banks recourse in respect of the Legacy Credit Agreement is limited to the
assets and stock of Franklin Holdings subsidiaries, excluding the assets of FCMC
(except for a first lien of the Bank on an office condominium unit and a second
priority lien of the Bank on cash collateral held as security under the Licensing
Credit Agreement) and a portion of FCMCs stock, representing not less than twenty
percent and not more than seventy percent of FCMCs common equity, based on the amounts
received by the Bank from the cash collections from FCMCs servicing of the Portfolio
as discussed in more detail below. Under the terms and conditions of the Restructuring
Agreements, FCMC may pay dividends or other distributions in respect of its capital
stock if FCMC delivers to the Bank a payment to be applied to outstanding obligations
under the Legacy Credit Agreement equal to seventy percent of any such distribution or
dividend that FCMC elects to make or declare, which percentage share may be reduced to
twenty percent based upon the Banks receipt of the agreed amounts of net remittances
from the Portfolio summarized below.
  
    
    release of thirty percent of the equity in FCMC, 10 percent of which has been
transferred to the Companys principal stockholder, Thomas J. Axon, from the Companys
pledges to the Bank in respect of its Legacy Credit Agreement, with the possibility of
release of up to an additional fifty percent (of which a maximum of ten percent would
go to Thomas J. Axon), based upon the Banks receipt of the agreed amounts of net
remittances from the Portfolio, summarized below (the Net Remittances), from March
31, 2009, the effective date of the Legacy Credit Agreement (the Legacy Effective
Date), through the term of the Legacy Credit Agreement;the Bank shall reduce its
interest in the equity in FCMC, as collateral, in accordance with the following
collection levels:
 Minimum Amountof Net RemittancesLevel
    
    (Minimum Level Amount)
    
    Time Period
    
    Release of Equity InterestsLevel 1
    
    $
    225 million
    
    1 year from the Legacy Effective Date
    
    10% (70% reduces to 60%)Level 2
    
    $
    475 million
    
    3 years from the Legacy Effective Date
    
    10% (60% reduces to 50%)Level 3
    
    $
    575 million
    
    No time period specified
    
    10% (50% reduces to 40%)Level 4
    
    $
    650 million
    
    No time period specified
    
    10% (40% reduces to 30%)Level 5
    
    $
    750 million
    
    No time period specified
    
    10% (30% reduces to 20%)
  41




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##### Table of Contents




    
    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 Franklin Holdings principal
stockholder, Thomas J. Axon, as the cost of obtaining certain guarantees and pledges
required by the Bank as a condition of the restructuring, subject to increase to an
additional ten percent should the pledge of common shares of FCMC by Franklin Holding
to the Bank be reduced upon the attainment by FCMC of certain net collection targets
set by the Bank with respect to the Portfolio;
 
    
    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.
  42




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##### Table of Contents



Restructuring Agreements.
 Transferred substantially all of the Portfolio in exchange for the REIT Securities
  (a)
    
    an undivided 100% interest of the Banks portion of consumer mortgage
loans (the Bank Consumer Loan Certificate);(b)
    
    an undivided 100% interest in the Banks portion of consumer REO assets
(the Bank Consumer REO Certificate, and together with the Bank Consumer Loan
Certificate, the Bank Trust Certificates);(c)
    
    an undivided 100% interest in the portion of consumer mortgage loan
assets allocated to the M&I Marshall & Ilsley Bank (M&I) and BOS (USA) Inc.
(BOS) (M&I and BOS collectively, the Participants) represented by two
certificates (the Participants Consumer Loan Certificates); and(d)
    
    an undivided 100% interest in Participants portion of the consumer REO
assets represented by two certificates (the Participants Consumer REO
Certificates, and together with the Participants Consumer Loan Certificate, the
Participants Trust Certificates).
     43




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##### Table of Contents



Amended and restated substantially all of its outstanding debt.
    44




---



##### Table of Contents



Terms of the Restructured Indebtedness Under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amount
    
    
    Applicable Interest
    
    
    Required Monthlyat March 31, 2009 
    
    
    at June 30, 2009 
    
    
    Margin Over LIBOR
    
    
    PrincipalFranklin Asset/Tribeca
    
    
    Franklin Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    787,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    $
    410,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    $
    130,000,000
    
    
    
    N/A
    (1)
    
    NoneUnrestructured Debt
    
    $
    41,000,000
    
    
    $
    40,000,000
    
    
    
    
    (2)
    
    None
 
 (1)
    
    The applicable interest rate is fixed at 15% per annum. Interest will be paid in kind
during the term of the Restructuring.(2)
    
    Interest margin over FHLB 30-day LIBOR advance rate plus 2.60-2.75%.      45




---



##### Table of Contents



Entered into an amended and restated credit agreement to fund FCMCs licensing obligations and
working capital.
   46




---



##### Table of Contents



Entered into a servicing agreement with the New Trust
     47




---



##### Table of Contents



Interest Rate Caps
  Interest Rate Swaps
    48




---



##### Table of Contents



Notional Amount
    
    Term
    
    
    Maturity Date
    
    
    Fixed Rate
    
    
    Estimated Fair Value*$
    275,000,000
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (10,714,131
    )70,000,000
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (2,220,380
    )45,000,000
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (1,836,731
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,771,242
    )
 
 *
    
    Determined in accordance with SFAS 157 based upon a Level 2 valuation methodology.  49




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
  Interest Rate Risk
     50




---



##### Table of Contents



ITEM 4T.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
   51




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Election of Directors
 Director
    
    For
    
    
    Withhold
    
    
    Abstain
    
    
    Not Voted
    
    
    TotalAlexander Gordon Jardin
    
    
    6,778,059
    
    
    
    200
    
    
    
    588,152
    
    
    
    658,884
    
    
    
    8,025,295William F. Sullivan
    
    
    6,778,059
    
    
    
    200
    
    
    
    588,152
    
    
    
    658,884
    
    
    
    8,025,295
 Certificate of Incorporation of FCMC
 For
    
    Against
    
    
    Abstain
    
    
    Not Voted
    
    
    Total6,808,566
    
    
    501,683
    
    
    
    56,160
    
    
    
    658,886
    
    
    
    8,025,295
  52




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##### Table of Contents



Independent Registered Public Accountants
 For
    
    Against
    
    
    Abstain
    
    
    Not Voted
    
    
    Total3,492,909
    
    
    484,562
    
    
    
    3,388,938
    
    
    
    658,886
    
    
    
    8,025,295
 
 ITEM 5.
    
    OTHER INFORMATION
      53




---



##### Table of Contents



ITEM 6.
    
    EXHIBITS
 ExhibitNumber3.1
    
    
    
    First Amended and Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the Commission) on
December 24, 2008.3.2
    
    
    
    Amended and Restated By-laws. Incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K,
filed with the Commission on December 24, 2008.10.100
    *
    
    
    Amendment No. 2 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, dated as of
August 10, 2009, by and among the Registrant, Franklin
Credit Asset Corporation, Flow 2006 F Corp., FCMC 2006 M
Corp., FCMC 2006 K Corp. and The Huntington National Bank.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.  54




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##### Table of Contents



SIGNATURES
  FRANKLIN CREDIT HOLDING CORPORATIONAugust 14, 2009
    By:
    /s/  ALEXANDER GORDON JARDINAlexander Gordon Jardin
Chief Executive Officer
(Principal Executive Officer)August 14, 2009
    By:
    /s/ PAUL D. COLASONOPaul D. Colasono
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)  55




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber3.1
    
    
    
    First Amended and Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the Commission) on
December 24, 2008.3.2
    
    
    
    Amended and Restated By-laws. Incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K,
filed with the Commission on December 24, 2008.10.100
    *
    
    
    Amendment No. 2 to First Amended and Restated Forbearance
Agreement and Amendment to Credit Agreements, dated as of
August 10, 2009, by and among the Registrant, Franklin
Credit Asset Corporation, Flow 2006 F Corp., FCMC 2006 M
Corp., FCMC 2006 K Corp. and The Huntington National Bank.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.  56