**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**








**xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended March 31, 2007**


**oTransition
      report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934**





**For
      the transition period from ________ to ___________**





**Commission
      file number** U **0-17771**








**FRANKLIN
      CREDIT MANAGEMENT CORPORATION**


(Exact
      name of Registrant as specified in its charter)




**Delaware**
            
            **75-2243266**(State
                or other jurisdiction of incorporation or
                organization)
            
            (I.R.S.
                Employer Identification
                No.)




**101
      Hudson Street**


**Jersey
      City, New Jersey 07302**


**(201)
      604-1800**


(Address
      of principal executive offices)








Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
      months (or for such shorter period that the registrant was required to file
      such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days. Yes x No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


oLarge
      accelerated filer   oAccelerated
      filer   xNon-accelerated
      filer





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes
o No
x





Number
      of
      shares of the registrant’s common stock, par value $0.01 per share, outstanding
      as of May 10, 2007: 8,025,295












FRANKLIN
      CREDIT MANAGEMENT CORPORATION





FORM
      10-Q





INDEX


**Page****PART
                  I.**
              
              
              **FINANCIAL
                  INFORMATION**Item
                  1.
              
              
              Financial
                  Statements (Unaudited)Consolidated
                  Balance Sheets at March 31, 2007 and December 31, 2006
              
              
              3Consolidated
                  Statements of Income for the three months endedMarch
                    31, 2007 and March 31, 2006
              
              
              4Consolidated
                  Statement of Changes in Stockholders’ Equityfor
                    the three months ended March 31, 2007
              
              
              5Consolidated
                  Statements of Cash Flows for the three months endedMarch
                    31, 2007 and March 31, 2006
              
              
              6Notes
                  to Consolidated Financial Statements
              
              
              7Item
                  2.
              
              
              Management’s
                  Discussion and Analysis of Financial Conditionand
                    Results of Operations
              
              
              18Application
                  of Critical Accounting Policies and Estimates
              
              
              18Portfolio
                  Characteristics
              
              
              19Results
                  of Operations
              
              
              29Liquidity
                  and Capital Resources
              
              
              32Borrowings
              
              
              34Item
                  3.
              
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              
              
              38Item
                  4.
              
              
              Controls
                  and Procedures
              
              
              39**PART
                  II.**
              ****
              ****
              **OTHER
                  INFORMATION**Item
                  1.
              
              
              Legal
                  Proceedings
              
              
              40Item
                  1A.
              
              
              Risk
                  Factors
              
              
              40Item
                  2.
              
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              
              43Item
                  3.
              
              
              Defaults
                  Upon Senior Securities
              
              
              43Item
                  4.
              
              
              Submission
                  of Matters to a Vote of Security Holders
              
              
              43Item
                  5.
              
              
              Other
                  Information
              
              
              43Item
                  6.
              
              
              Exhibits
              
              
              44**SIGNATURES**
              
              
              
              
              
              45









**FRANKLIN
      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**


CONSOLIDATED
      BALANCE SHEETS (UNAUDITED)




**March
                31, 2007**
              **(Unaudited)**
            
            **December
                31, 2006****ASSETS**Cash
                and cash equivalents
            
            $
            6,735,515
            
            $
            3,983,104Restricted
                cash
            
            
            36,272,555
            
            
            32,689,154Short-term
                investments
            
            
            20,550,956
            
            
            20,311,193Notes
                Receivable:Principal
            
            
            1,223,688,459
            
            
            1,174,039,567Purchase
                discount
            
            
            (12,244,539
            )
            
            (12,423,746
            )Allowance
                for loan losses
            
            
            (49,155,945
            )
            
            (52,424,375
            )Net
                notes receivable
            
            
            1,162,287,975
            
            
            1,109,191,446Originated
                loans held for sale
            
            
            16,504,244
            
            
            4,114,284Originated
                loans held for investment, net
            
            
            440,573,798
            
            
            422,682,795Accrued
                interest receivable
            
            
            21,872,293
            
            
            22,010,027Other
                real estate owned
            
            
            25,598,245
            
            
            22,977,725Deferred
                financing costs, net
            
            
            10,850,809
            
            
            10,622,961Other
                receivables
            
            
            7,567,539
            
            
            6,614,386Building,
                furniture and equipment, net
            
            
            4,166,410
            
            
            3,715,908Income
                tax receivable
            
            
            10,050,776
            
            
            8,594,119Other
                assets
            
            
            983,270
            
            
            850,897Total
                assets
            
            $
            1,764,014,385
            
            $
            1,668,357,999**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Liabilities:Notes
                payable, net of debt discount of $472,660 at March 31, 2007and
                $515,799 at December 31, 2006
            
            $
            1,608,461,012
            
            $
            1,520,217,264Financing
                agreements
            
            
            83,541,677
            
            
            55,962,315Accounts
                payable and accrued expenses
            
            
            22,603,553
            
            
            22,875,527Repurchase
                obligation
            
            
            -
            
            
            18,094,061Deferred
                tax liability
            
            
            3,686,626
            
            
            3,655,483Total
                liabilities
            
            
            1,718,292,868
            
            
            1,620,804,650Commitments
                and ContingenciesStockholders’
                Equity:Preferred
                stock, $.01 par value; authorized 3,000,000; issued - none
            
            
            -
            
            
            -Common
                stock and additional paid-in capital, $.01 par value, 22,000,000
                authorized shares; issued and outstanding: 8,025,295 at March 31,
                2007 and
                8,025,295 at December 31, 2006
            
            
            22,837,024
            
            
            22,715,180Retained
                earnings
            
            
            22,884,493
            
            
            24,838,169Total
                stockholders’ equity
            
            
            45,721,517
            
            
            47,553,349Total
                liabilities and stockholders’ equity
            
            $
            1,764,014,385
            
            $
            1,668,357,999




See
      Notes
      to Consolidated Financial Statements.




3




**FRANKLIN
      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF INCOME


THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)




**Three
                Months Ended March 31,****2007**
            
            **2006****Revenues:**Interest
                income
            
            $
            38,903,935
            
            $
            33,442,311Purchase
                discount earned
            
            
            1,413,558
            
            
            1,978,963Gain
                on sale of notes receivable
            
            
            -
            
            
            69,049Gain
                on sale of originated loans
            
            
            3,039
            
            
            165,872Gain
                on sale of other real estate owned
            
            
            121,175
            
            
            801,542Prepayment
                penalties and other income
            
            
            2,099,980
            
            
            2,205,205Total
                revenues
            
            
            42,541,687
            
            
            38,662,942**Operating
                Expenses:**Interest
                expense
            
            
            31,559,804
            
            
            24,491,567Collection,
                general and administrative
            
            
            8,893,445
            
            
            7,947,880Provision
                for loan losses
            
            
            4,333,464
            
            
            1,869,130Amortization
                of deferred financing costs
            
            
            775,835
            
            
            908,015Depreciation
            
            
            347,546
            
            
            311,705Total
                expenses
            
            
            45,910,094
            
            
            35,528,297(Loss)/income
                before provision for income taxes
            
            
            (3,368,407
            )
            
            3,134,645Income
                tax (benefit)/expense
            
            
            (1,414,731
            )
            
            1,347,897Net
                (loss)/income
            
            $
            (1,953,676
            )
            $
            1,786,748**Net
                (loss)/income per common share:**Basic
            
            $
            (0.25
            )
            $
            0.24Diluted
            
            $
            (0.25
            )
            $
            0.22**Weighted
                average number of shares outstanding:**Basic
            
            
            7,930,462
            
            
            7,516,670Diluted
            
            
            7,930,462
            
            
            8,001,749




See
      Notes to Consolidated Financial
      Statements.




4




**FRANKLIN
      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


THREE
      MONTHS ENDED MARCH 31, 2007 (UNAUDITED)





**Common
                Stock and**
              **Additional
                Paid-in Capital****Shares**
            
            **Amount**
            
            **Retained**
              **Earnings**
            
            **Total**BALANCE,
                JANUARY 1, 2007
            
            
            8,025,295
            
            $
            22,715,180
            
            $
            24,838,169
            
            $
            47,553,349Stock-based
                compensation
            
            
            -
            
            
            121,844
            
            
            -
            
            
            121,844Net
                (loss)
            
            
            -
            
            
            -
            
            
            (1,953,676
            )
            
            (1,953,676
            )BALANCE,
                MARCH 31, 2007
            
            
            8,025,295
            
            $
            22,837,024
            
            $
            22,884,493
            
            $
            45,721,517





See
      Notes to Consolidated Financial
      Statements.




5


**FRANKLIN
      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)





**Three
                Months Ended March 31,****2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                (loss)/income
            
            $
            (1,953,676
            )
            $
            1,786,748Adjustments
                to reconcile income to net cash provided by/(used in) operating
                activities:Gain
                on sale of notes receivable
            
            
            -
            
            
            (69,049
            )Gain
                on sale of other real estate owned
            
            
            (121,175
            )
            
            (801,542
            )Gain
                on sale of originated loans
            
            
            (3,041
            )
            
            (165,872
            )Depreciation
            
            
            347,546
            
            
            311,705Amortization
                of deferred costs and fees on originated loans
            
            
            202,251
            
            
            21,660Amortization
                of deferred financing costs
            
            
            775,835
            
            
            908,015Amortization
                of debt discount and success fees
            
            
            43,141
            
            
            286,576Non-cash
                compensation
            
            
            121,844
            
            
            148,758Proceeds
                from the sale of and principal collections on loans held for
                sale
            
            
            5,231,263
            
            
            7,217,309Deferred
                tax provision
            
            
            31,145
            
            
            277,753Purchase
                discount earned
            
            
            (1,413,558
            )
            
            (1,978,963
            )Provision
                for loan losses
            
            
            4,333,464
            
            
            1,869,130Origination
                of loans held for sale
            
            
            (17,345,360
            )
            
            (4,781,950
            )Changes
                in operating assets and liabilities:Accrued
                interest receivable
            
            
            137,734
            
            
            (116,930
            )Other
                receivables
            
            
            (953,153
            )
            
            1,037,585Income
                tax receivable
            
            
            (1,456,658
            )
            
            -Other
                assets
            
            
            (132,374
            )
            
            (289,685
            )Accounts
                payable and accrued expenses
            
            
            (271,972
            )
            
            645,641Net
                cash (used) in/provided by operating activities
            
            
            (12,426,744
            )
            
            6,306,889CASH
                FLOWS FROM INVESTING ACTIVITIES:Increase
                in restricted cash
            
            
            (3,583,401
            )
            
            (11,605,746
            )Purchase
                of notes receivable
            
            
            (125,386,390
            )
            
            (95,907,234
            )Principal
                collections on notes receivable
            
            
            61,039,166
            
            
            68,050,038Principal
                collections on loans held for investment
            
            
            52,786,302
            
            
            44,443,779Origination
                of loans held for investment
            
            
            (73,818,177
            )
            
            (99,642,068
            )Investment
                in short-term securities
            
            
            (239,762
            )
            
            (1,074,897
            )Proceeds
                from sale of other real estate owned
            
            
            8,497,239
            
            
            8,347,640Proceeds
                from sale of notes receivable
            
            
            -
            
            
            84,553Purchase
                of building, furniture and equipment
            
            
            (798,047
            )
            
            (149,852
            )Net
                cash used in investing activities
            
            
            (81,503,070
            )
            
            (87,453,787
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from notes payable
            
            
            207,419,884
            
            
            204,983,359Principal
                payments of notes payable
            
            
            (119,219,279
            )
            
            (113,824,675
            )Proceeds
                from financing agreements
            
            
            119,415,324
            
            
            105,217,323Principal
                payments of financing agreements
            
            
            (91,835,960
            )
            
            (114,242,219
            )Repurchase
                obligation
            
            
            (18,094,061
            )
            
            -Payment
                of deferred financing costs
            
            
            (1,003,683
            )
            
            (1,288,539
            )Exercise
                of options
            
            
            -
            
            
            27,500Net
                cash provided by financing activities
            
            
            96,682,225
            
            
            80,872,749NET
                CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            2,752,411
            
            
            (274,149
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            3,983,104
            
            
            3,886,506CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            $
            6,735,515
            
            $
            3,612,357SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                payments for interest
            
            $
            31,284,167
            
            $
            20,883,979Cash
                payments for taxes
            
            $
            10,781
            
            $
            1,388,218NON-CASH
                INVESTING AND FINANCING ACTIVITY:Transfer
                of loans from held for sale to loans held for investment
            
            $
            -
            
            $
            443,623Transfer
                from notes receivable and loans held for investment to
                OREO
            
            $
            10,996,584
            
            $
            12,235,621




See
      Notes to Consolidated Financial
      Statements.




6




**FRANKLIN
      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**1.** **BUSINESS**




**Overview**




As
      used
      herein references to the “Company,” “FCMC,” “we,” “our” and “us” refer to
      Franklin Credit Management Corporation, collectively with its
      subsidiaries.




We
      are a
      specialty consumer finance company primarily engaged in two related lines of
      business: (1) the acquisition, servicing and resolution of performing,
      reperforming and nonperforming residential mortgage loans and real estate
      assets; and (2) the origination of subprime mortgage loans, both for our
      portfolio and for sale into the secondary market. We specialize in acquiring
      and
      originating loans secured by 1-4 family residential real estate that generally
      fall outside the underwriting standards of Fannie Mae and Freddie Mac and
      involve elevated credit risk as a result of the nature or absence of income
      documentation, limited credit histories, higher levels of consumer debt or
      past
      credit difficulties. We typically purchase loan portfolios at a discount, and
      originate loans with interest rates and fees, calculated to provide us with
      a
      rate of return adjusted to reflect the elevated credit risk inherent in the
      types of loans we acquire and originate. Unlike many of our competitors, we
      generally hold for investment the loans we acquire and a significant portion
      of
      the loans we originate.




From
      inception through March 31, 2007, we had purchased and originated in excess
      of
      $4.14 billion in mortgage loans. As of March 31, 2007, we had total assets
      of
      $1.76 billion and our portfolios of notes receivable, loans held for investment,
      and loans held for sale net, totaled $1.62 billion.




***Loan
      Acquisitions***




Since
      commencing operations in 1990, we have become a nationally recognized buyer
      of
      portfolios of residential mortgage loans and real estate assets from a variety
      of financial institutions in the United States, including mortgage banks,
      commercial banks and thrifts, other traditional financial institutions and
      other
      specialty finance companies. These portfolios generally consist of one or more
      of the following types of mortgage loans:




·
            *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.





We
      sometimes refer collectively to these types of loans as “scratch and dent” or
“S&D” loans.




We
      have
      developed a specialized expertise at risk-based pricing, credit evaluation
      and
      loan servicing that allows us to effectively evaluate and manage the higher
      risks associated with this segment of the residential mortgage industry,
      including the rehabilitation or resolution of reperforming and nonperforming
      loans.




7




We
      refer
      to the S&D loans we acquire as “notes receivable.” In the first quarter of
      2007, we purchased notes receivable with an aggregate unpaid principal balance
      of $146.3 million at an aggregate purchase price equal to 86% of the face
      amount of the notes.




***Loan
      Originations***




We
      conduct our loan origination business through our wholly-owned subsidiary,
      Tribeca Lending Corp. (“Tribeca”), which we formed in 1997 in order to
      capitalize on our experience in evaluating and servicing scratch and dent
      residential mortgage loans. We originate primarily subprime residential mortgage
      loans to individuals with serious financial difficulties and whose
      documentation, credit histories, income and other factors cause them to be
      classified as subprime borrowers and to whom, as a result, conventional mortgage
      lenders often will not make loans. The loans we originate typically carry
      interest rates that are significantly higher than those of prime loans and
      we
      believe have fairly conservative loan-to-value ratios. The principal factor
      in
      our underwriting guidelines has historically been our determination of the
      borrower’s equity in his or her home and the related calculation of the
      loan-to-value ratio based on the appraised value of the property, and not,
      or to
      a lesser extent, on a determination of the borrower’s ability to repay the loan.
      In 2005, we began in an increasing number of cases to gather and analyze
      additional information that allows us to assess to a reasonable degree the
      borrower’s ability and intent to repay the loan in connection with our credit
      decision. We have chosen to focus our marketing efforts on this segment of
      the 1-4 family
      residential real estate mortgage market in order to capitalize on our extensive
      experience in acquiring and servicing loans with similar credit risk
      characteristics.




During
      the first quarter of 2007, we originated $91.2 million in subprime mortgage
      loans, 83% of which were adjustable-rate (fixed-rate for the first two years)
      loans. We originated approximately 33% of our mortgage loans on a retail basis,
      compared with 67% in the first quarter of 2006, and the remainder through our
      wholesale network of mortgage brokers. We hold the majority of mortgages we
      originate in our portfolio and sell the remainder for cash in the whole-loan
      market, depending on market conditions and our own portfolio goals.




In
      February 2007, Tribeca acquired a wholesale mortgage origination operation,
      which included the employment of 59 sales and processing personnel located
      in
      Bridgewater, New Jersey.




Tribeca
      paid $485,000 for the associated fixed assets and assumed the lease obligation
      for the Bridgewater office facility. In addition, Tribeca took over the existing
      pipeline of “Alt-A” loans (loans on the credit scale between prime and subprime
      where the borrower possesses a strong credit history but is in need of
      non-traditional underwriting and processing) in various stages of processing
      as
      of the closing of the transaction, which included approximately $17 million
      of
      loans that were locked with the borrower out of a total pipeline of $27 million.
      Tribeca will pay 50 basis points to the seller of the wholesale mortgage
      origination operation for each loan in the acquired pipeline that is
      subsequently closed by Tribeca within 90 days of the acquisition. Tribeca did
      not purchase any closed loans or other assets, nor assume any liabilities other
      than those under the seller’s lease for the Bridgewater office
      space.




The
      principal purpose of the acquisition was to add experienced origination
      personnel and senior management to Tribeca in order to further expand the
      origination of its Liberty Loan products.




From
      time
      to time, we sell a portion of the Tribeca loan originations for cash on a
      whole-loan, servicing-released basis. Certain whole-loan sale contracts include
      provisions requiring the Company to repurchase a loan if a borrower fails to
      make one or more of the first loan payments due on the loan after the date
      of
      sale. In addition, the purchaser may require that the Company refund a portion
      of the premium paid on the sale of mortgage loans if a loan is prepaid in full
      within a certain amount of time from the date of sale.




8




In
      the
      first quarter of 2007, the Company repurchased $20.4 million of Liberty Loans
      previously sold to investors. The Company had potential remaining repurchase
      obligations, for the reasons described above in respect to Liberty Loans sold
      on
      or before March 31, 2007, of less than $10.0 million at March 31,
      2007.




***Loan
      Servicing***




We
      have
      invested heavily to create a loan servicing capability that is focused on
      collections, loss mitigation and default management. In general, we seek to
      ensure that the loans we acquire and originate are repaid in accordance with
      the
      original terms or according to amended repayment terms negotiated with the
      borrowers. Because we expect our loans will experience above average
      delinquencies, erratic payment patterns and defaults, our servicing operation
      is
      focused on maintaining close contact with our borrowers and as a result is
      more
      labor-intensive than traditional mortgage servicing operations. Through frequent
      communication we are able to encourage positive payment performance, quickly
      identify those borrowers who are likely to move into seriously delinquent status
      and promptly apply appropriate loss mitigation strategies. Our servicing staff
      employs a variety of collection strategies that we have developed to
      successfully manage serious delinquencies, bankruptcy and foreclosure.
      Additionally, we maintain a real estate department with extensive experience
      in
      property management and the sale of residential properties.




**Financing**




We
      have
      historically financed both our acquisitions of mortgage loan portfolios and
      our
      loan originations through various long and short-term borrowing arrangements
      with Sky Bank, the banking affiliate of Sky Financial Group, Inc., an
      $18 billion regional publicly-held bank holding company headquartered in
      Bowling Green, Ohio, and its predecessors (collectively referred to as “Sky”).
      We have had a strong relationship with Sky since the early 1990s. In December
      2006, Sky and Huntington Bancshares Inc. announced a pending merger, expected
      to
      close in the third quarter of 2007, pending regulatory and shareholder
      approvals. The combined bank, which will be the successor to our credit
      facilities provided by Sky, would have approximately $54 billion in assets
      and
      will be the 24 th largest
      bank holding company headquartered in the United States.




In
      October 2004, we consolidated all of our arrangements with Sky relating to
      the
      term funding of loan acquisitions under a Master Credit and Security Agreement
      (referred to as “Master Credit facility”). Under this Master Credit Facility,
      which has been extended to June 30, 2007, we request loans to finance the
      purchase of pools of residential mortgage loans or refinance existing
      outstanding loans. In connection with our continued business expansion, Sky
      has
      arranged for additional financial institutions to participate under our master
      credit facility. In August 2006, we entered into a $40 million revolving
      warehouse agreement (referred to as “Flow Warehouse”) with Sky and a participant
      to accumulate loans acquired on a flow basis prior to aggregating such loans
      into term debt under the Master Credit Facility. Prior to August 2006, loan
      acquisitions acquired on a flow basis were funded directly under the Master
      Credit Facility. Our borrowings under the Flow Warehouse and Master Credit
      Facility are secured by a first priority lien on the mortgage loans financed
      by
      the proceeds of our borrowings.




To
      finance the loans it originates, in October 2005, Tribeca entered into a
      Warehousing Credit and Security Agreement (referred to as “Tribeca Warehouse
      Facility” or “Tribeca Warehousing Agreement”) with Sky and a participant in
      order to accumulate loans originated prior to aggregating such loans into term
      debt under a separate master credit and security agreement with Sky. This
      warehousing agreement is a revolving commitment for $60 million. The maturity
      date of this warehouse commitment was extended to June 30, 2007. In the first
      quarter of 2006, Tribeca and certain of its subsidiaries entered into a Master
      Credit and Security Agreement (referred to as “Tribeca Master Credit Facility”)
      with Sky pursuant to which Tribeca may borrow term funds to finance originated
      loans temporarily financed under its Warehouse Facility. In the first quarter
      of
      2006, Tribeca also entered into a $100 million Master Credit and Security
      Agreement with BOS (USA) Inc., an affiliate of the Bank of Scotland; $98 million
      under this facility was used to consolidate and refinance term loans previously
      made to Tribeca by Sky.




9




**2.** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




***Basis
      of Presentation*** -
      The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. All significant intercompany accounts and
      transactions have been eliminated in consolidation.  The accompanying
      unaudited consolidated financial statements have been prepared in accordance
      with instructions to Form 10-Q. Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America for complete financial statements. However,
      such
      information reflects all adjustments which are, in the opinion of management,
      necessary for a fair statement of results for the periods.




Certain
      amounts in prior periods have been reclassified to conform to the current
      period’s presentation.




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.
      The most significant estimates of the Company are the allowance for loan losses,
      the allocation of discount between accretable and nonaccretable, and income
      taxes. The Company’s estimates and assumptions primarily arise from risks and
      uncertainties associated with interest rate volatility and credit exposure.
      Although management is not currently aware of any factors that would
      significantly change its estimates and assumptions in the near term, future
      changes in market trends and conditions may occur which could cause actual
      results to differ materially. These financial statements should be read in
      conjunction with the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2006. The operating and financial results for interim periods
      reported are not necessarily indicative of the results that may be expected
      for
      the full year.




***Notes
      Receivable and Income Recognition*** **** -
      The
      notes receivable portfolio consists primarily of secured real estate mortgage
      loans purchased from financial institutions and mortgage and finance companies.
      Such notes receivable are performing, non-performing or sub-performing at the
      time of purchase and are generally purchased at a discount from the principal
      balance remaining. Notes receivable are stated at the amount of unpaid
      principal, reduced by purchase discount and allowance for loan losses. Notes
      purchased are stated net of purchase discount. Impaired notes receivable are
      measured based on the present value of expected future cash flows discounted
      at
      the note’s effective interest rate or, as a practical expedient, at the
      observable market price of the note receivable or the fair value of the
      collateral if the note is collateral dependent. The Company periodically
      evaluates the collectibility of both interest and principal of its notes
      receivable to determine whether they are impaired. A note receivable is
      considered impaired when it is probable the Company will be unable to collect
      all contractual principal and interest payments due in accordance with the
      terms
      of the note agreement.




In
      general, interest on the notes receivable is calculated based on contractual
      interest rates applied to daily balances of the principal amount outstanding
      using the accrual method. Accrual of interest on notes receivable, including
      impaired notes receivable, is discontinued when management believes, after
      considering economic and business conditions and collection efforts, that the
      borrower’s financial condition is such that collection of interest is doubtful.
      When interest accrual is discontinued, all unpaid accrued interest is reversed
      against interest income. Subsequent recognition of income occurs only to the
      extent payment is received, subject to management’s assessment of the
      collectibility of the remaining interest and principal. A non-accrual note
      is
      restored to an accrual status when it is no longer delinquent and collectibility
      of interest and principal is no longer in doubt and past due interest is
      recognized at that time.







10




***Discounts
      on Acquired Loans*** -
      Effective January 1, 2005, as a result of the required adoption of SOP 03-3
      the
      Company was required to change its accounting for loans acquired subsequent
      to
      December 31, 2004, which have evidence of deterioration of credit quality since
      origination and for which it is probable, at the time of our acquisition, that
      the Company will be unable to collect all contractually required payments.
      For
      these loans, the excess of the undiscounted contractual cash flows over the
      undiscounted cash flows estimated by us at the time of acquisition is not
      accreted into income (nonaccretable discount). The amount representing the
      excess of cash flows estimated by us at acquisition over the purchase price
      is
      accreted into purchase discount earned over the life of the loan (accretable
      discount). The nonaccretable discount is not accreted into income. If cash
      flows
      cannot be reasonably estimated for any loan, and collection is not probable,
      the
      cost recovery method of accounting may be used. Under the cost recovery method,
      any amounts received are applied against the recorded amount of the
      loan.




Subsequent
      to acquisition, if cash flow projections improve, and it is determined that
      the
      amount and timing of the cash flows related to the nonaccretable discount are
      reasonably estimable and collection is probable, the corresponding decrease
      in
      the nonaccretable discount is transferred to the accretable discount and is
      accreted into interest income over the remaining life of the loan on the
      interest method. If cash flow projections deteriorate subsequent to acquisition,
      the decline is accounted for through the allowance for loan losses.




There
      is
      judgment involved in estimating the amount of the loan’s future cash flows. The
      amount and timing of actual cash flows could differ materially from management’s
      estimates, which could materially affect our financial condition and results
      of
      operations. Depending on the timing of an acquisition, the initial allocation
      of
      discount generally will be made primarily to nonaccretable discount until the
      Company has boarded all loans onto its servicing system; at that time, any
      cash
      flows expected to be collected over the purchase price will be transferred
      to
      accretable discount. Generally, the allocation will be finalized no later than
      ninety days from the date of purchase.




For
      loans
      not addressed by SOP 03-3 that are acquired subsequent to December 31, 2004,
      the
      discount, which represents the excess of the amount of reasonably estimable
      and
      probable discounted future cash collections over the purchase price, is accreted
      into purchase discount earned using the interest method over the term of the
      loans. This is consistent with the method the Company utilizes for its
      accounting for loans purchased prior to January 1, 2005, except that for these
      loans an allowance allocation was also made at the time of
      acquisition.




11


The
      following table sets forth certain information relating to the activity in
      the
      accretable and nonaccretable discounts, which are shown as a component of notes
      receivable principal on the balance sheet, in accordance with SOP 03-3 for
      the
      periods indicated:




**Three
                Months Ended March 31,****2007**
            
            **2006**U**Accretable
                Discount**UBalance,
                beginning of period
            
            $
            12,842,755
            
            $
            11,360,617New
                Acquisitions
            
            
            29,080
            
            
            2,545,873Accretion
            
            
            (722,759
            )
            
            (863,381
            )Transfers
                from nonaccretable
            
            
            4,163,501
            
            
            1,371,683Net
                reductions relating to loans sold
            
            
            -
            
            
            -Net
                reductions relating to loans repurchased
            
            
            -
            
            
            (2,189
            )Other
            
            
            (1,372
            )
            
            41,845Balance,
                end of period
            
            $
            16,311,205
            
            $
            14,454,448U**Nonaccretable
                Discount**UBalance,
                beginning of period
            
            $
            60,531,503
            
            $
            23,981,013New
                Acquisitions
            
            
            20,879,024
            
            
            5,374,531Transfers
                to accretable
            
            
            (4,163,501
            )
            
            (1,371,683
            )Net
                reductions relating to loans sold
            
            
            -
            
            
            (7,885
            )Net
                reductions relating to loans repurchased
            
            
            (153,267
            )
            
            (6,873
            )Net
                reduction relating to loans charged off
            
            
            (2,085,241
            )
            
            -Other,
                loans transferred to OREO
            
            
            (1,225,980
            )
            
            (452,170
            )Balance,
                end of period
            
            $
            73,782,538
            
            $
            27,516,933




The
      Company purchased $146,296,402 of loans subject to SOP 03-3 during the three
      months ended March 31, 2007. The outstanding balance of notes receivable subject
      to SOP 03-3 at March 31, 2007 was $965,818,343.




***Allowance
      for Loan Losses*** **** -
      The
      Company performs reviews of its loan portfolio upon purchase, at loan boarding,
      and on a frequent basis thereafter to segment impaired loans under SFAS No.
      114, *Accounting
      by Creditors for Impairment of a Loan - an amendment of FASB Statements No.
      5
      and 15* .
      A loan
      is considered impaired when it is probable that we will be unable to collect
      all
      contractual principal and interest payments due in accordance with the terms
      of
      the note agreement. An allowance for loan losses is estimated based on our
      impairment analysis.  Management’s
      judgment in determining the adequacy of the allowance for loan losses is based
      on the evaluation of individual loans within the portfolios, the known and
      inherent risk characteristics and size of the portfolio, the assessment of
      current economic and real estate market conditions, estimates of the current
      value of underlying collateral, past loan loss experience and other relevant
      factors. In connection with the determination of the allowance for loan losses,
      management obtains independent appraisals for the underlying collateral when
      considered necessary. Management believes that the allowance for loan losses
      is
      adequate. The allowance for loan losses is a material estimate, which could
      change significantly in the near term.




Effective
      January 1, 2005, and as a result of the adoption of SOP 03-3, additions to
      the
      allowance for loan losses relating to newly acquired loans reflect only those
      losses incurred by us subsequent to acquisition. The Company no longer increases
      the allowances through allocations from purchase discount for loans that meet
      the requirements of SOP 03-3. Additionally, general risk allocations are no
      longer applied to loans purchased subsequent to December 31, 2004. Consequently,
      the allowance for loan losses has declined since the adoption of SOP 03-3,
      and
      it is anticipated that the allowance will continue to decline as credits for
      loan losses may continue to be recorded if loans pay off and allowances related
      to these loans are not required or additions due to loan impairment are not
      required.




12




***Originated
      Loans Held for Sale*** -
      The
      loans held for sale consist primarily of secured real estate first and second
      mortgages originated by the Company. Such loans held for sale are performing
      and
      are carried at lower of cost or market. The gain/loss on sale is recorded as
      the
      difference between the carrying amount of the loan and the proceeds from sale
      on
      a loan-by-loan basis. **** The **** Company
      records a sale upon settlement and when the title transfers to the
      seller.




Transfers
      of financial assets are accounted for as sales, when control over the assets
      has
      been surrendered. Control over transferred assets is deemed to be surrendered
      when (1) the assets have been isolated from the Company, (2) the transferee
      has
      the right (free of conditions that constrain it from taking advantage of that
      right) to pledge or exchange the transferred assets, and (3) the Company does
      not maintain effective control over the transferred assets through either (a)
      an
      agreement that entitles and obligates the Company to repurchase or redeem them
      before their maturity or (b) the ability to unilaterally cause the holder to
      return specific assets.




Gains
      or
      losses resulting from loan sales are recognized at the time of sale, based
      on
      the difference between the net sales proceeds and the carrying value of the
      loans sold.




Certain
      whole-loan sale contracts include provisions requiring the Company to repurchase
      a loan if a borrower fails to make one or more of the first loan payments due
      on
      the loan. In addition, an investor may request that the Company refund a portion
      of the premium paid on the sale of mortgage loans if a loan is prepaid in full
      within a certain amount of time from the date of sale. The Company records
      a
      provision for estimated repurchases and premium recapture on loans sold, which
      is charged to gain on sale of loans.




***Originated
      Loans Held for Investment*** -
      During
      the third quarter of 2006, the Company modified its estimate of the
      collectibility of accrued interest on certain fully secured loans that are
      in
      the foreclosure process. As a result, the Company continues to accrue interest
      on secured real estate first mortgage loans originated by the Company up to
      a
      maximum of 209 days contractually delinquent with a recency payment in the
      last
      179 days, and that are judged to be fully recoverable for both principal and
      accrued interest based on a foreclosure analysis, which includes an updated
      estimate of the realizable value of the property securing the loan.




In
      general, interest on originated loans held for investment is calculated based
      on
      contractual interest rates applied to daily balances of the principal amount
      outstanding using the accrual method. The Company’s decision to revise its
      estimate of collectibility was based on recent collection information, which
      shows that the Company is collecting 100% of principal and between 90% to 100%
      of delinquent interest when these loans in the foreclosure process are paid
      off
      or settled.




The
      accrual of interest is discontinued when management believes, after considering
      economic and business conditions and collection efforts, that the borrower’s
      financial condition is such that collection of interest is doubtful, which
      can
      be less than 209 days contractually delinquent with a recency payment in the
      last 179 days. When interest accrual is discontinued, all unpaid accrued
      interest is reversed against interest income. Subsequent recognition of income
      occurs only to the extent payment is received, subject to management’s
      assessment of the collectibility of the remaining interest and principal. A
      non-accrual loan is restored to an accrual status when the collectibility of
      interest and principal is no longer in doubt and past due interest is recognized
      at that time.




13




***Stock-Based
      Compensation Plans*** - The
      Company maintains share-based payment arrangements under which employees are
      awarded grants of restricted stock, non-qualified stock options, incentive
      stock
      options and other forms of stock-based payment arrangements. Prior to January
      1,
      2006, the Company accounted for these awards under the recognition and
      measurement provisions of Accounting Principles Board Opinion No. 25,
“ *Accounting
      for Stock Issued to Employees* ”
(“APB
      25”) as permitted under SFAS No. 123, “ *Accounting
      for Stock-Based Compensation* ”
(“SFAS
      123”). Accordingly, compensation cost for stock options was not recognized as
      long as the stock options granted had an exercise price equal to the market
      price of the Company’s common stock on the date of grant. Effective January 1,
      2006, the Company adopted the fair value recognition provisions of SFAS No.
      123
      (revised 2004), “ *Share-Based
      Payment* ,”
(“SFAS
      123(R)”) using the modified-prospective transition method. Under this transition
      method, compensation cost recognized beginning January 1, 2006 includes
      compensation cost for all share-based payment arrangements issued, but not
      yet
      vested as of December 31, 2005, based on the grant date fair value and expense
      attribution methodology determined in accordance with the original provisions
      of
      SFAS 123. Compensation cost for all share-based payment arrangements granted
      subsequent to December 31, 2005, is based on the grant-date fair value estimated
      in accordance with the provisions of SFAS 123(R). In addition, the effect of
      forfeitures on restricted stock (if any), is estimated when recognizing
      compensation cost. Results for prior periods have not been recast for the
      adoption of SFAS No. 123(R).




Prior
      to
      adoption of SFAS 123(R), the Company presented all tax benefits of deductions
      resulting from the exercise of stock options as operating cash flows in the
      Statement of Cash Flows. SFAS 123(R) requires the cash flows resulting from
      the
      tax benefits of tax deductions in excess of the compensation cost recognized
      for
      those options (excess tax benefits) to be classified as financing cash
      flows.




***·***  ***Stock
      Options*** - The
      Company awarded stock options to certain officers and directors under the
      Franklin Credit Management Corporation 1996 Stock Incentive Plan (the “Plan”) as
      amended. The Compensation Committee of the Board of Directors (the “Compensation
      Committee”) determines which eligible employees or directors will receive
      awards, the types of awards to be received, and the terms and conditions
      thereof.




Options
      granted under the Plan may be designated as either incentive stock options
      or
      non-qualified stock options. The Compensation Committee determines the terms
      and
      conditions of the option, including the time or times at which an option may
      be
      exercised, the methods by which such exercise price may be paid, and the form
      of
      such payment. Options are generally granted with an exercise price equal to
      the
      market value of the Company’s stock at the date of grant. These option awards
      generally vest over 1 to 3 years and have a contractual term of 10
      years.




The
      Company estimated the fair value of stock options granted on the date of grant
      using the Black-Scholes option-pricing model. The table below presents the
      assumptions used to estimate the fair value of stock options granted on the
      date
      of grant using the Black-Scholes option-pricing model for the years ended
      December 31, 2006, 2005 and 2004. The risk-free rate for periods within the
      contractual life of the stock option is based on the U.S. Treasury yield curve
      in effect at the time of grant. The Company uses historical data to estimate
      stock option exercise. The expected term of stock options granted is derived
      from the output of the model and represents the period of time that stock
      options granted are expected to be outstanding. The estimates of fair value
      from
      these models are theoretical values for stock options and changes in the
      assumptions used in the models could result in materially different fair value
      estimates. The actual value of the stock options will depend on the market
      value
      of the Company’s common stock when the stock options are exercised.




14


A
      summary
      of the status of the Company’s stock option awards as of March 31, 2007 and
      changes during the three month period then ended is presented
      below:




**Shares**
            
            **Weighted
                Average Exercise**
            
            **Weighted
                Average Remaining Contractual Term**
            
            **Aggregate
                Intrinsic Value**Balance,
                January 1, 2007
            
            
            355,000
            
            $
            3.38
            
            
            5.41
                years
            
            $
            1,014,560Options
                activity
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                March 31, 2007
            
            
            355,000
            
            
            3.38
            
            
            5.16
                years
            
            
            993,960Options
                exercisable at March 31, 2007
            
            
            355,000
            
            $
            3.38
            
            
            
            
            $
            993,960





There
      were no stock option awards granted during the three month period ended March
      31, 2007.




As
      of
      March 31, 2007, all of the stock options were vested and related compensation
      cost was fully recognized. The compensation cost recognized in income was
      $89,406 and $56,696 for the three months ended March 31, 2007 and 2006,
      respectively.




At
      March
      31, 2007, the Company had 10,000 warrants outstanding at an exercise price
      of
      $5.00.




**2006
      Stock Incentive Plan**




On
      May
      24, 2006, the shareholders approved the 2006 Stock Incentive Plan. This approval
      authorized and reserved 750,000 shares for grant under the 2006 stock incentive
      plan. Awards can consist of non-qualified stock options, incentive stock
      options, stock appreciation rights, shares of restricted stock, restricted
      stock
      units, shares of unrestricted stock, performance shares and dividend equivalent
      rights are authorized. Grants of non-qualified stock options, incentive stock
      options and stock appreciation rights under the 2006 Stock Incentive Plan
      generally qualify as “performance-based compensation” under Section 162(m) of
      the Internal Revenue Code, and, therefore, are not subject to the provisions
      of
      Section 162(m), which disallow a federal income tax deduction for certain
      compensation in excess of $1 million per year paid to the Company’s Chief
      Executive Officer and each of its four other most highly compensated executive
      officers.




·  ***Restricted
      Stock*** -
      Restricted shares of the Company’s common stock have been awarded to certain
      executives. The stock awards are subject to restrictions on transferability
      and
      other restrictions, and step vest over a three year period.




A
      summary
      of the status of the Company’s restricted stock awards as of March 31, 2007 and
      changes during the period then ended is presented below:




**Shares**
            
            **Weighted
                Average Grant Date**
              **Fair
                Value**Non-vested
                balance, January 1, 2007
            
            
            95,000
            
            $
            8.36Vested
            
            
            (10,000
            )
            
            10.36Forfeited
            
            
            -
            
            
            -Non-vested
                balance, March 31, 2007
            
            
            85,000
            
            $
            8.12




15




As
      of
      March 31, 2007, there was $667,454 of unrecognized compensation cost related
      to
      the Company’s restricted stock awards, which will be recognized over a period of
      2.71 years.




***Operating
      Segments*** -
      SFAS
      No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* ,
      requires companies to report financial and descriptive information about their
      reportable operating segments, including segment profit or loss, certain
      specific revenue and expense items, and segment assets. The Company has two
      reportable operating segments: (i) portfolio asset acquisition and resolution;
      and (ii) mortgage banking. The portfolio asset acquisition and resolution
      segment acquires performing, reperforming or nonperforming notes receivable
      and
      promissory notes from financial institutions and mortgage and finance companies,
      and services and collects such notes receivable through enforcement of terms
      of
      the original note, modification of original note terms and, if necessary,
      liquidation of the underlying collateral. The mortgage banking segment
      originates or purchases, subprime residential mortgage loans from individuals
      whose credit histories, income and other factors cause them to be classified
      as
      subprime borrowers.




The
      Company’s management evaluates the performance of each segment based on profit
      or loss from operations before unusual and extraordinary items and income
      taxes.




**Three
                Months Ended March 31,****2007**
            
            **2006****CONSOLIDATED
                REVENUE:**Portfolio
                asset acquisition and resolution
            
            $
            32,029,363
            
            $
            27,943,632Mortgage
                banking
            
            
            10,512,324
            
            
            10,719,310Consolidated
                revenue
            
            $
            42,541,687
            
            $
            38,662,942**CONSOLIDATED
                NET INCOME:**Portfolio
                asset acquisition and resolution
            
            $
            (1,559,886
            )
            $
            787,448Mortgage
                banking
            
            
            (393,790
            )
            
            999,300Consolidated
                net income
            
            $
            (1,953,676
            )
            $
            1,786,748**March
                31, 2007**
            
            
            **December
                31, 2006****CONSOLIDATED
                ASSETS:**Portfolio
                asset acquisition and resolution
            
            $
            1,268,269,751
            
            $
            1,207,914,463Mortgage
                banking
            
            
            495,744,634
            
            
            460,443,536Consolidated
                assets
            
            $
            1,764,014,385
            
            $
            1,668,357,999




***Recent
      Accounting Pronouncements*** - In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities, including
      an
      amendment of FASB Statement No. 115* .”
SFAS
      No. 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value. Unrealized gains and losses on items
      for
      which the fair value option has been elected will be recognized in earnings
      at
      each subsequent reporting date. This accounting standard is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007. The Company is evaluating the impact the adoption of this statement may
      have on its consolidated financial statements.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “ *Fair
      Value Measurements* ”
(SFAS
      157). SFAS 157 enhances existing guidance for measuring assets and liabilities
      using fair value. Prior to the issuance of SFAS 157, guidance for applying
      fair
      value was incorporated in several accounting pronouncements. SFAS 157 provides
      a
      single definition of fair value, together with a framework for measuring it,
      and
      requires additional disclosure about the use of fair value to measure assets
      and
      liabilities. SFAS 157 also emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement, and sets out a fair value
      hierarchy with the highest priority being quoted prices in active markets.
      Under
      SFAS 157, fair value measurements are disclosed by level within that hierarchy.
      While SFAS 157 does not add any new fair value measurements, it does change
      current practice. Changes to practice include: (1) a requirement for an entity
      to include its own credit standing in the measurement of its liabilities; (2)
      a
      modification of the transaction price presumption; (3) a prohibition on the
      use
      of block discounts when valuing large blocks of securities for broker-dealers
      and investment companies; and (4) a requirement to adjust the value of
      restricted stock for the effect of the restriction even if the restriction
      lapses within one year. SFAS 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. Management is currently evaluating the effect of the
      statement, if any, on the Company’s results of operations and financial
      condition.




16




On
      July 13, 2006, the FASB released FASB Interpretation No. 48,
“ *Accounting
      for Uncertainty in Income Taxes* ,”
an
      interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the
      accounting and reporting for income taxes where interpretation of the tax law
      may be uncertain. FIN 48 prescribes a comprehensive model for the financial
      statement recognition, measurement, presentation and disclosure of income tax
      uncertainties with respect to positions taken or expected to be taken in income
      tax returns. We adopted the provisions of Financial Accounting Standards Board
      (“FASB”) Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes* ,”
an
      interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007. FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprises financial statements in accordance with FASB Statement 109,
“ *Accounting
      for Income Taxes* ,”
and
      prescribes a recognition threshold and measurement process for financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition.




Based
      on
      our evaluation, we have concluded that there are no significant uncertain tax
      positions, requiring recognition in our financial statements. Our evaluation
      was
      performed for the tax years ended 2003 through 2006, which remain open to
      examination by major tax jurisdictions to which we are subject as of March
      31,
      2007.




We
      may
      from time to time be assessed interest or penalties by major tax jurisdictions,
      although any such assessments historically have been minimal and immaterial
      to
      our financial results. Should we receive an assessment for interest and/or
      penalties, it would be classified in the financial statements as collection,
      general and administrative expenses.




17




**ITEM
      2.** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




**General**




***Safe
      Harbor Statements.*** Statements contained herein that are not historical fact may be forward-looking
      statements within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
      that are subject to a variety of risks and uncertainties. There are a number
      of
      important factors that could cause actual results to differ materially from
      those projected or suggested in forward-looking statements made by the Company.
      These factors include, but are not limited to: (i) unanticipated changes in
      the
      U.S. economy, including changes in business conditions such as interest rates,
      and changes in the level of growth in the finance and housing markets; (ii)
      the
      status of the Company’s relations with the Company’s principal lender and such
      lender’s willingness to extend credit to the Company; (iii) the availability for
      purchases of additional loans; (iv) the availability of subprime borrowers
      for
      the origination of additional loans; (v) changes in the statutes or regulations
      applicable to the Company’s business or in the interpretation and enforcement
      thereof by the relevant authorities; (vi) the status of the Company’s regulatory
      compliance; and (vii) other risks detailed from time to time in the Company’s
      SEC reports and filings. Additional factors that would cause actual results
      to
      differ materially from those projected or suggested in any forward-looking
      statements are contained in the Company’s filings with the Securities and
      Exchange Commission, including, but not limited to, those factors discussed
      under the captions “Risk Factors,” “Interest Rate Risk” and “Real Estate Risk”
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006
      and Quarterly Reports on Form 10-Q, which the Company urges investors to
      consider. The Company undertakes no obligation to publicly release the revisions
      to such forward-looking statements that may be made to reflect events or
      circumstances after the date hereof or to reflect the occurrences of
      unanticipated events, except as otherwise required by securities, and other
      applicable laws. Readers are cautioned not to place undue reliance on these
      forward-looking statements, which speak only as of the date hereof. The Company
      undertakes no obligation to release publicly the results on any events or
      circumstances after the date hereof or to reflect the occurrence of
      unanticipated events.




**Application
      of Critical Accounting Policies and Estimates**




The
      Company’s significant accounting policies are described in Note 2 to the
      December 31, 2006 consolidated financial statements filed on Form 10-K. We
      have
      identified notes receivable and income recognition, discounts on acquired loans,
      allowance for loan losses, originated loans held for sale, originated loans
      held
      for investment, and other real estate owned as the Company’s most critical
      accounting policies and estimates. The following discussion and analysis of
      financial condition and results of operations is based on the amounts reported
      in our consolidated financial statements, which are prepared in accordance
      with
      accounting principles generally accepted in the United States of America, or
      GAAP. In preparing the consolidated financial statements, management is required
      to make various judgments, estimates and assumptions that affect the financial
      statements and disclosures. Changes in these estimates and assumptions could
      have a material effect on our consolidated financial statements. Management
      believes that the estimates and judgments used in preparing these consolidated
      financial statements were the most appropriate at that time.




18


**Portfolio
      Characteristics**




***Overall
      Portfolio***




At
      March
      31, 2007, our portfolio (excluding OREO) consisted of $1.31 billion of notes
      receivable (inclusive of purchase discount not reflected on the face of the
      balance sheet), $444.9 million of loans held for investment and $16.3 million
      of
      loans held for sale. Our total loan portfolio grew 7% to $1.78 billion as of
      March 31, 2007, from $1.66 billion at December 31, 2006. Not boarded loans
      represent loans serviced by the seller on a temporary basis. The following
      table
      sets forth information regarding the types of properties securing our
      loans.




U**Property
                Types**U
            
            U**Principal
                Balance**U
            
            **Percentage
                of Total**
              U**Principal
                Balance**UResidential
                1-4 family
            
            $
            1,473,500,509
            
            
            83.01
            %Condos,
                co-ops, PUD dwellings
            
            
            200,050,036
            
            
            11.27
            %Manufactured
                and mobile homes
            
            
            21,283,276
            
            
            1.20
            %Multi-family
            
            
            1,134,583
            
            
            0.06
            %Secured,
                property type unknown(1)
            
            
            37,518,617
            
            
            2.11
            %Commercial
            
            
            2,471,943
            
            
            0.14
            %Unsecured
                loans
            
            
            25,163,369
            
            
            1.42
            %Other
            
            
            598,549
            
            
            0.03
            %Not
                boarded(2)
            
            
            13,427,474
            
            
            0.76
            %Total
            
            $
            1,775,148,356
            
            
            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)
              A portion of not boarded loans has been included
                in the
                appropriate property type categories based on available information
                provided by the servicer-seller. The total amount of not boarded
                loans was
                $73.0 million at March 31, 2007.


19


***Geographic
      Dispersion.*** The
      following table sets forth information regarding the geographic location of
      properties securing the loans in our portfolio at March 31, 2007:




U**Location**U
            
            U**Principal
                Balance**U
            
            **Percentage
                of Total**
              U**Principal
                Balance**UCalifornia
            
            $
            222,358,671
            
            
            12.53
            %New
                York
            
            
            192,143,354
            
            
            10.82
            %New
                Jersey
            
            
            173,929,031
            
            
            9.80
            %Florida
            
            
            135,860,457
            
            
            7.65
            %Texas
            
            
            84,248,801
            
            
            4.75
            %Pennsylvania
            
            
            77,465,016
            
            
            4.36
            %Ohio
            
            
            73,315,043
            
            
            4.13
            %Michigan
            
            
            61,812,854
            
            
            3.48
            %Illinois
            
            
            61,701,916
            
            
            3.47
            %Maryland
            
            
            54,440,879
            
            
            3.07
            %All
                Others
            
            
            624,444,860
            
            
            35.18
            %Not
                Boarded*
            
            
            13,427,474
            
            
            0.76
            %Total
            
            $
            1,775,148,356
            
            
            100.00
            %


__________________


*
                A
                    portion of not boarded loans has been included in the appropriate
                    states
                    based on available information provided by the servicer-seller.
                    The total
                    amount of not boarded loans was $73.0 million at March 31,
                    2007.
  Amounts
          included in the tables above under the heading “Principal Balance” represent the
          aggregate unpaid principal balance outstanding of notes receivable, loans
          held
          for investment and loans held for sale.




20


***Asset
      Quality***




***Delinquency*** **.** The
      following tables provide a breakdown of the delinquency status of our notes
      receivable, loans held for investment and loans held for sale portfolios as
      of
      the dates indicated, by principal balance. Because we specialize in acquiring
      and servicing loans with erratic payment patterns and an elevated level of
      credit risk, a portion of the loans we acquire are in various stages of
      delinquency, foreclosure and bankruptcy when we acquire them. We monitor the
      payment status of our borrowers based on both contractual delinquency and
      recency delinquency. By contractual delinquency, we mean the delinquency of
      payments relative to the contractual obligations of the borrower. By recency
      delinquency, we mean the recency of the most recent full monthly payment
      received from the borrower. By way of illustration, on a recency delinquency
      basis, if the borrower has made the most recent full monthly payment within
      the
      past 30 days, the loan is shown as current regardless of the number of
      contractually delinquent payments. In contrast, on a contractual delinquency
      basis, if the borrower has made the most recent full monthly payment, but has
      missed an earlier payment or payments, the loan is shown as contractually
      delinquent. We classify a loan as in foreclosure when we determine that the
      best
      course of action to maximize recovery of unpaid principal balance is to begin
      the foreclosure process. We classify a loan as in bankruptcy when we receive
      notice of a bankruptcy filing from the bankruptcy court.




**March
                31, 2007****Contractual
                Delinquency**
            
            **Recency
                Delinquency****Days
                Past Due**
            
            **Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%****Current**
            
            
            0
                - 30 days
            
            $
            1,013,493,945
            
            
            57.09
            %
            $
            1,159,305,946
            
            
            65.31
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            82,342,837
            
            
            4.64
            %
            
            51,271,485
            
            
            2.89
            %61
                - 90 days
            
            
            56,476,615
            
            
            3.18
            %
            
            23,656,433
            
            
            1.33
            %90+
                  days
            
            
            178,831,781
            
            
            10.08
            %
            
            96,911,314
            
            
            5.46
            %U**Bankruptcy**U
            
            
            0
                - 30 days
            
            
            35,063,745
            
            
            1.98
            %
            
            98,410,653
            
            
            5.54
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            7,154,753
            
            
            0.40
            %
            
            7,120,326
            
            
            0.40
            %61
                  - 90 days
            
            
            6,785,534
            
            
            0.38
            %
            
            4,020,254
            
            
            0.23
            %90+
                  days
            
            
            107,104,713
            
            
            6.03
            %
            
            46,557,512
            
            
            2.62
            %U**Foreclosure**U
            
            
            0
                - 30 days
            
            
            891,504
            
            
            0.05
            %
            
            12,871,037
            
            
            0.73
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            1,100,125
            
            
            0.06
            %
            
            2,613,114
            
            
            0.15
            %61
                  - 90 days
            
            
            2,005,989
            
            
            0.12
            %
            
            3,222,596
            
            
            0.18
            %90+
                days
            
            
            210,891,786
            
            
            11.88
            %
            
            196,182,657
            
            
            11.05
            %**Not
                Boarded***
            
            
            
            
            
            73,005,029
            
            
            4.11
            %
            
            73,005,029
            
            
            4.11
            %**Total**
            
            $
            1,775,148,356
            
            
            100.00
            %
            $
            1,775,148,356
            
            
            100.00
            %**Total
                loans**
            
            
            **0
                - 30 days**
            
            $
            1,049,449,194
            
            
            59.12
            %
            $
            1,270,587,636
            
            
            71.58
            %


__________________




*
            Not
                boarded represents recently acquired loans serviced by the seller
                on a
                temporary basis.




21




**December
                31, 2006****Contractual
                Delinquency**
            
            **Recency
                Delinquency****Days
                Past Due**
            
            **Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%****Current**
            
            
            0
                - 30 days
            
            $
            961,563,124
            
            
            57.91
            %
            $
            1,096,675,851
            
            
            66.04
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            89,662,792
            
            
            5.40
            %
            
            57,397,832
            
            
            3.46
            %61
                  - 90 days
            
            
            12,558,911
            
            
            0.76
            %
            
            20,572,952
            
            
            1.24
            %90+
                  days
            
            
            195,922,320
            
            
            11.80
            %
            
            85,060,512
            
            
            5.12
            %**Bankruptcy**
            
            
            0
                - 30 days
            
            
            38,276,181
            
            
            2.31
            %
            
            101,649,384
            
            
            6.12
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            8,523,006
            
            
            0.51
            %
            
            6,957,591
            
            
            0.42
            %61
                  - 90 days
            
            
            3,231,686
            
            
            0.19
            %
            
            2,920,336
            
            
            0.18
            %90+
                days
            
            
            104,883,243
            
            
            6.32
            %
            
            43,386,805
            
            
            2.61
            %**Foreclosure**
            
            
            0
                - 30 days
            
            
            622,379
            
            
            0.04
            %
            
            8,371,118
            
            
            0.50
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            214,085
            
            
            0.01
            %
            
            1,789,362
            
            
            0.11
            %61
                - 90 days
            
            
            244,283
            
            
            0.02
            %
            
            2,593,268
            
            
            0.16
            %90+
                  days
            
            
            208,091,113
            
            
            12.53
            %
            
            196,418,112
            
            
            11.83
            %**Not
                Boarded****(1)**
            
            
            
            
            
            36,687,620
            
            
            2.21
            %
            
            36,687,620
            
            
            2.21
            %**Total****(2)**
            
            $
            1,660,480,743
            
            
            100.00
            %
            $
            1,660,480,743
            
            
            100.00
            %**Total
                loans**
            
            
            **0
                - 30 days**
            
            $
            1,000,461,684
            
            
            60.25
            %
            $
            1,206,696,353
            
            
            72.67
            %


__________________




(1)
            Not
                boarded represents recently acquired loans serviced by the seller
                on a
                temporary basis. A portion of not boarded loans has been included
                in the
                appropriate delinquency categories based on information provided
                by the
                seller-servicer. The remaining portion of not boarded loans, for
                which
                information has not been entered into our servicing system, is shown
                in
                the not boarded category. (2)
            Excludes $17.2 million of loans sold to investors,
              which
              the Company committed to repurchase, that are included on the face
              of the
              balance sheet atDecember
              31, 2006.




22




***Notes
      Receivable Portfolio***




At
      March
      31, 2007, our notes receivable portfolio, which consists of purchased loans,
      included approximately 29,993 loans with an aggregate unpaid principal balance
      (“UPB”) of $1.31 billion and a net UPB of $1.17 billion (after allowance for
      loan losses of $49.2 million), compared with approximately 29,460 loans with
      an
      aggregate UPB of $1.25 billion and a net UPB of $1.12 billion (after allowance
      for loan losses of $52.4 million) as of December 31, 2006. Impaired loans
      comprise and will continue to comprise a significant portion of our portfolio.
      Many of the loans we acquire are impaired loans at the time of purchase. We
      generally purchase such loans at significant discounts and have considered
      the
      payment status, underlying collateral value and expected cash flows when
      determining our purchase price. While interest income is not accrued on impaired
      loans, interest and fees are received on a portion of loans classified as
      impaired. The following table provides a breakdown of the notes receivable
      portfolio by year:




**March
                31,****2007**
            
            **December
                31,****2006**Performing
                loans
            
            $
            997,635,264
            
            $
            866,296,721Allowance
                for loan losses
            
            
            5,048,197
            
            
            7,745,261Nonaccretable
                discount*
            
            
            39,126,065
            
            
            29,536,412Total
                performing loans,net
                of allowance for loan losses and nonaccretable discount
            
            
            953,461,002
            
            
            829,015,048Impaired
                loans
            
            
            243,141,910
            
            
            251,210,748Allowance
                for loan losses
            
            
            44,107,748
            
            
            44,679,114Nonaccretable
                discount*
            
            
            21,621,878
            
            
            19,892,190Total
                impaired loans,net
                of allowance for loan losses and nonaccretable discount
            
            
            177,412,284
            
            
            186,639,444Not
                yet boarded onto servicing system
            
            
            73,005,029
            
            
            129,906,356Nonaccretable
                discount*
            
            
            13,034,595
            
            
            11,102,901Not
                yet boarded onto servicing system,net
                of allowance for loan losses and nonaccretable discount
            
            
            59,970,434
            
            
            118,803,455Total
                notes receivable,net
                of allowance for loan losses and nonaccretable discount
            
            
            1,190,843,720
            
            
            1,134,457,947Accretable
                discount*
            
            
            16,311,205
            
            
            12,842,755Total
                Notes Receivable,net
                of allowance for loan losses and accretable/nonaccretable
                discount
            
            $
            1,174,532,515
            
            $
            1,121,615,192


__________________


*
              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.
  23


The
      following table provides a breakdown of the balance of our portfolio of notes
      receivable between fixed-rate and adjustable-rate loans, net of allowance for
      loan losses and excluding loans purchased but not yet boarded onto our servicing
      operations system as of March 31, 2007 of $73,005,029 and $129,906,356 as of
      December 31, 2006, respectively.




**March
                31,****2007**
            
            **December
                31,****2006***Performing
                Loans:*Fixed
                rate
            
            $
            861,075,127
            
            $
            755,334,985Adjustable
                rate
            
            
            131,511,940
            
            
            103,216,474*Total
                Performing Loans*
            
            $
            992,587,067
            
            $
            858,551,459*Impaired
                Loans:*Fixed
                rate
            
            $
            164,191,490
            
            $
            169,586,108Adjustable
                rate
            
            
            34,842,672
            
            
            36,945,527*Total
                Impaired Loans*
            
            $
            199,034,162
            
            $
            206,531,635Total
                Notes
            
            $
            1,191,621,229
            
            $
            1,065,083,094Accretable
                discount
            
            $
            16,311,205
            
            $
            12,842,755Nonaccretable
                discount
            
            $
            60,747,943
            
            $
            49,428,602Total
                Notes Receivable,net
                of allowance for loan losses,excluding
                loans not boarded onto servicing systems
            
            $
            1,114,562,081
            
            $
            1,002,811,737





***Loan
      Acquisitions***




We
      purchased over $146.3 million in assets (principally residential single-family
      loans) during the first quarter of 2007, compared with approximately $103.8
      million in assets (principally residential single-family loans secured by second
      liens) during the first quarter of 2006. Approximately $76.2 million of the
      loans purchased in the first quarter of 2007 were secured by first liens. The
      following table sets forth the amounts and purchase prices of our mortgage
      loan
      acquisitions during the three months ended March 31, 2007 and 2006:




**Three
                Months Ended March 31,****2007**
            
            **2006**Number
                of loans
            
            
            2,114
            
            
            2,538Aggregate
                unpaid principal balance at acquisition
            
            $
            146,296,402
            
            $
            103,827,616Purchase
                price
            
            $
            125,386,390
            
            $
            95,907,234Purchase
                price percentage
            
            
            86
            %
            
            92
            %Percentage
                of 1stliens
            
            
            52
            %
            
            15
            %Percentage
                of 2ndliens
            
            
            48
            %
            
            85
            %




24




***Notes
      Receivable Dispositions***




In
      the
      ordinary course of our loan servicing process and through the periodic review
      of
      our portfolio of purchased loans, there are certain loans that, for various
      reasons, we determine to sell. We typically sell these loans on a whole-loan,
      servicing-released basis, for cash. The following table sets forth our
      dispositions of purchased loans during the quarters ended March 31, 2007 and
      March 31, 2006:




**Three
                Months Ended March 31,****2007**
            
            **2006****Sale
                of Non-Performing Loans**Aggregate
                unpaid principal balance
            
            $
            -
            
            $
            161,149Gain
                on sale
            
            $
            -
            
            $
            69,049




There
      were no sales of performing loans in the above periods.




***Tribeca’s*** **Loan
      Originations**




The
      following table sets forth Tribeca’s loan originations, as well as dispositions,
      during the quarters ended March 31, 2007 and 2006.




**Three
                Months Ended March 31,****2007**
            
            **2006**Number
                of loans originated
            
            
            380
            
            
            477Original
                principal balance
            
            $
            91,163,537
            
            $
            104,775,205Average
                loan amount
            
            $
            239,904
            
            $
            219,655Originated
                as fixed(1)
            
            $
            15,575,499
            
            $
            4,064,450Originated
                as ARM(2)
            
            $
            75,588,038
            
            $
            100,710,755Number
                of loans sold
            
            
            15
            
            
            24Aggregate
                face value
            
            $
            3,842,462
            
            $
            6,752,441Gain
                on sale
            
            $
            128,583
            
            $
            165,872Gain
                on sale percentage
            
            
            3.35
            %
            
            2.46
            %


__________________




(1)
            Includes
                $9.9 million of “*Alt-A*”
                loans from the pipeline of loans assumed with the acquisition of
                the
                wholesale origination unit in February
                2007. (2)
            Originated ARM loans are principally fixed-rate
              for the
              first two years and six-month adjustable-rate for the remaining
              term.




25




***Property
      Types of Originated Loans Held for Investment.*** At March
      31, 2007, Tribeca’s portfolio consisted of $443.6 million of loans originated
      and held for investment and $16.3 million of loans held for sale. Tribeca’s
      portfolio of loans held for investment grew 4% to $443.6 million as of March
      31,
      2007, from $424.6 million at December 31, 2006. The following table sets forth
      information regarding the types of properties securing Tribeca’s portfolio of
      loans held for investment.




**Loans
                Held for Investment**
              **at
                March 31, 2007**U**Property
                Types**U
            
            U**Principal
                Balance**U
            
            **Percentage
                of Total**
              U**Principal
                Balance**UResidential
                1-4 family
            
            $
            415,440,490
            
            
            93.46
            %Condos,
                co-ops, PUD dwellings
            
            
            27,059,020
            
            
            6.09
            %Commercial
            
            
            1,635,944
            
            
            0.37
            %Other
            
            
            340,750
            
            
            0.08
            %Total
            
            $
            444,476,204
            
            
            100.00
            %




***Geographic
      Dispersion of Originated Loans.*** The
      following table sets forth information regarding the geographic location of
      properties securing all loans originated by Tribeca during the three months
      ended March 31, 2007 and the aggregate portfolio of loans originated and held
      for investment at March 31, 2007:




**Loans
                Originated**
              **for
                Three Months Ended**
              **March
                31, 2007**
            
            **Loans
                Held for Investment**
              **at
                March 31, 2007****Location**
            
            **Principal**
              **Balance**
            
            **Percentage
                of Total**
              **Principal
                Balance**
            
            **Principal**
              **Balance**
            
            **Percentage
                of Total**
              **Principal
                Balance**New
                Jersey
            
            $
            26,831,660
            
            
            29.43
            %
            $
            137,614,359
            
            
            30.96
            %New
                York
            
            
            26,288,197
            
            
            28.84
            %
            
            132,696,868
            
            
            29.85
            %Florida
            
            
            8,743,535
            
            
            9.59
            %
            
            23,525,746
            
            
            5.29
            %Pennsylvania
            
            
            4,929,375
            
            
            5.41
            %
            
            38,618,208
            
            
            8.69
            %Maryland
            
            
            4,572,100
            
            
            5.01
            %
            
            21,371,289
            
            
            4.81
            %Massachusetts
            
            
            4,370,000
            
            
            4.79
            %
            
            26,037,671
            
            
            5.86
            %Virginia
            
            
            3,324,480
            
            
            3.65
            %
            
            14,523,339
            
            
            3.27
            %Connecticut
            
            
            3,068,400
            
            
            3.37
            %
            
            14,870,770
            
            
            3.35
            %California
            
            
            1,830,500
            
            
            2.01
            %
            
            10,149,366
            
            
            2.28
            %North
                Carolina
            
            
            1,361,900
            
            
            1.49
            %
            
            3,236,473
            
            
            0.73
            %All
                Others
            
            
            5,843,390
            
            
            6.41
            %
            
            21,832,115
            
            
            4.91
            %Total
            
            $
            91,163,537
            
            
            100.00
            %
            $
            444,476,204
            
            
            100.00
            %




26


***Delinquency*** **.** The
      following tables provide a breakdown of the delinquency status of our loans
      held
      for investment and loans held for sale portfolios as of the dates indicated,
      by
      principal balance. Because we specialize in originating residential mortgage
      loans for individuals with credit histories, income and/or factors that cause
      them to be classified as subprime borrowers, a substantially greater portion
      of
      the loans we originate experience varying degrees of delinquency, foreclosure
      and bankruptcy than those of prime lenders. However, due to the fairly
      conservative loan-to-value ratios, we typically collect full payment of
      principal and interest on delinquent loans that are in the process of
      foreclosure. We monitor the payment status of our borrowers based on both
      contractual delinquency and recency delinquency. By contractual delinquency,
      we
      mean the delinquency of payments relative to the contractual obligations of
      the
      borrower. By recency delinquency, we mean the recency of the most recent full
      monthly payment received from the borrower. By way of illustration, on a recency
      delinquency basis, if the borrower has made the most recent full monthly payment
      within the past 30 days, the loan is shown as current regardless of the number
      of contractually delinquent payments. In contrast, on a contractual delinquency
      basis, if the borrower has made the most recent full monthly payment, but has
      missed an earlier payment or payments, the loan is shown as contractually
      delinquent. We classify a loan as in foreclosure when we determine that the
      best
      course of action to maximize recovery of unpaid principal balance is to begin
      the foreclosure process. We classify a loan as in bankruptcy when we receive
      notice of a bankruptcy filing from the bankruptcy court.




**March
                31, 2007****Contractual
                Delinquency**
            
            **Recency
                Delinquency****Days
                Past Due**
            
            **Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%****Current**
            
            
            0
                - 30 days
            
            $
            231,760,797
            
            
            50.23
            %
            $
            286,386,661
            
            
            62.07
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            24,188,753
            
            
            5.24
            %
            
            17,883,929
            
            
            3.88
            %61
                  - 90 days
            
            
            19,486,584
            
            
            4.23
            %
            
            4,252,886
            
            
            0.92
            %90+
                  days
            
            
            57,244,033
            
            
            12.41
            %
            
            24,156,691
            
            
            5.24
            %U**Bankruptcy**U
            
            
            0
                - 30 days
            
            
            139,190
            
            
            0.03
            %
            
            6,478,176
            
            
            1.40
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            55,358
            
            
            0.01
            %
            
            993,419
            
            
            0.22
            %61
                  - 90 days
            
            
            477,750
            
            
            0.10
            %
            
            889,350
            
            
            0.19
            %90+
                  days
            
            
            20,365,832
            
            
            4.42
            %
            
            12,677,185
            
            
            2.75
            %U**Foreclosure*******U
            
            
            0
                - 30 days
            
            
            264,533
            
            
            0.06
            %
            
            4,645,971
            
            
            1.01
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            602,462
            
            
            0.13
            %
            
            336,760
            
            
            0.07
            %61
                  - 90 days
            
            
            1,455,504
            
            
            0.31
            %
            
            1,235,173
            
            
            0.27
            %90+
                days
            
            
            105,325,358
            
            
            22.83
            %
            
            101,429,953
            
            
            21.98
            %**Total**
            
            $
            461,366,154
            
            
            100.00
            %
            $
            461,366,154
            
            
            100.00
            %**Total
                loans**
            
            
            **0
                - 30 days**
            
            $
            232,164,520
            
            
            50.32
            %
            $
            297,510,808
            
            
            64.48
            %


__________________




*
            $107.6
                million of loans were in various stages of the foreclosure process;
                our
                servicing practice for this portfolio is to move loans into our
                foreclosure collection process at an early stage of
                delinquency.




27





**December
                31, 2006****Contractual
                Delinquency**
            
            **Recency
                Delinquency****Days
                Past Due**
            
            **Amount**
            ****
            **%**
            ****
            **Amount**
            ****
            **%****Current**
            
            
            0
                - 30 days
            
            $
            188,855,227
            
            
            45.72
            %
            $
            239,784,515
            
            
            58.05
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            31,652,388
            
            
            7.66
            %
            
            23,558,856
            
            
            5.70
            %61
                - 90 days
            
            
            2,561,701
            
            
            0.62
            %
            
            8,105,861
            
            
            1.96
            %90+
                  days
            
            
            76,292,627
            
            
            18.47
            %
            
            27,912,711
            
            
            6.76
            %U**Bankruptcy**U
            
            
            0
                - 30 days
            
            
            134,904
            
            
            0.03
            %
            
            2,039,871
            
            
            0.49
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            55,652
            
            
            0.02
            %
            
            330,509
            
            
            0.08
            %61
                  - 90 days
            
            
            -
            
            
            -
            
            
            -
            
            
            -90+
                  days
            
            
            9,885,179
            
            
            2.39
            %
            
            7,705,355
            
            
            1.87
            %U**Foreclosure****(1)**
            
            
            0
                - 30 days
            
            
            -
            
            
            -
            
            
            1,894,422
            
            
            0.46
            %**Delinquent**
            
            
            31
                - 60 days
            
            
            -
            
            
            -
            
            
            621,003
            
            
            0.15
            %61
                  - 90 days
            
            
            -
            
            
            -
            
            
            1,258,886
            
            
            0.31
            %90+
                days
            
            
            103,629,240
            
            
            25.09
            %
            
            99,854,929
            
            
            24.17
            %**Total****(2)**
            
            $
            413,066,918
            
            
            100.00
            %
            $
            413,066,918
            
            
            100.00
            %**Total
                loans**
            
            
            **0
                - 30 days**
            
            $
            188,990,131
            
            
            45.75
            %
            $
            243,718,808
            
            
            59.00
            %


__________________




(1)
            $103.6
                million of loans were in various stages of the foreclosure process;
                our
                servicing practice for this portfolio is to move loans into our
                foreclosure collection process at an early stage of
                delinquency.


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




During
      2006, our loans held for investment, principally Liberty Loans, became more
      seasoned and, as generally anticipated, a significant portion of our Liberty
      Loans moved into the foreclosure process. At March 31, 2007, $106.6 million
      of
      Liberty Loans, or 23% of the portfolio of loans held for investment were in
      our
      foreclosure process, compared with $102.7 million, or 25% at December 31, 2006
      and $44.7 million, or 12%, at December 31, 2005. Our Servicing department
      personnel evaluated the collateral of each loan in the foreclosure process
      for
      its estimated realizable value, utilizing updated BPOs; the estimated losses
      on
      disposition aggregated approximately $675,000 at March 31, 2007. In addition,
      our experience with Liberty Loans is that a percentage of the loans in the
      foreclosure process pay off in full,  and that such payoffs include
      approximately 90% of all unpaid interest due on the loans being repaid at the
      time of payoff, prior to actual foreclosure sale.




28




***Other
      Real Estate Owned***




The
      following table sets forth our real estate owned, or OREO portfolio, and OREO
      sales during the three months ended March 31, 2007 and March 31,
      2006:




**Three
                Months Ended March 31,****2007**
            
            **2006**Other
                real estate owned
            
            $
            25,598,245
            
            $
            20,122,886OREO
                as a percentage of total assets
            
            
            1.45
            %
            
            1.42
            %OREO
                sold
            
            $
            8,352,780
            
            $
            7,546,098Gain
                on sale
            
            $
            121,175
            
            $
            801,542





**Results
      of Operations**




***Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31,
      2006***




***Overview.*** The
      Company had a net loss of $2.0 million for the first quarter of 2007, compared
      with net income of $1.8 million for the first quarter of 2006, a decrease of
      210%. Revenues increased by 10% to $42.5 million for the three months ended
      March 31, 2007, from $38.7 million for the three months ended March 31, 2006.
      The Company had a loss per common share for the three months ended March 31,
      2007 of $0.25 both on a diluted and basic basis, compared to earnings per share
      of $0.22 on a diluted basis and $0.24 on a basic basis for the three months
      ended March 31, 2006. During the first quarter of 2007, we acquired first and
      second lien loans with an aggregate face amount of $146.3 million and we
      originated $91.2 million of subprime 1-4 family residential loans. We increased
      the size of our total portfolio of net notes receivable, loans held for sale,
      loans held for investment and OREO at March 31, 2007 to $1.64 billion from
      $1.56
      billion at the end of 2006. Correspondingly, our total debt outstanding grew
      to
      $1.69 billion at March 31, 2007 from $1.58 billion at December 31, 2006,
      and from $1.34 billion at March 31, 2006. As a result of the increase of our
      total debt, and the impact of approximately a 92 basis points rise in short-term
      interest rates since the beginning of 2006 on our interest-sensitive borrowings,
      interest expense (inclusive of amortization of deferred financing costs and
      success fees) increased by $6.9 million, or 27%, during the first quarter of
      2007 compared with the same period in 2006. Our average cost of funds during
      the
      three months ended March 31, 2007 increased to 7.72% from 7.39% during the
      three
      months ended March 31, 2006. At March 31, 2007, the weighted average interest
      rate of borrowed funds was 7.86%. Collection, general and administrative
      expenses increased $946,000 or 12%, to $8.9 million during the three months
      ended March 31, 2007, from $7.9 million for the same period in 2006. The
      increase in collection, general and administrative expenses reflected for the
      most part the growth of the Company during the past twelve months, as total
      assets increased 25% from March 31, 2006. The provision for loan losses
      increased $2.5 million to $4.3 million in the three months ended March 31,
      2007,
      principally due to higher than expected default rates from certain pools of
      loans purchased in mid-2004 and estimated lower values on foreclosed properties.
      Gains on loan sales decreased by $163,000 to $3,000 in the three months ended
      March 31, 2007, due to a $126,000 mark-to-market adjustment for “Alt-A” loans
      held for sale. Stockholders’ equity decreased 4% to $45.7 million at March 31,
      2007, from $47.6 million at December 31, 2006.




***Revenues.*** Revenues
      increased by $3.9 million, or 10%, to $42.5 million during the first quarter
      of
      2007, from $38.7 million during the same period in 2006. Revenues include
      interest income, purchase discount earned, gains on sales of notes receivable,
      gains on sales of originated loans, gains on sales of OREO and prepayment
      penalties and other income.




29




Interest
      income increased by $5.5 million or 16%, to $38.9 million during the three
      months ended March 31, 2007 from $33.4 million during the three months ended
      March 31, 2006. The increase in interest income reflected a 21% increase in
      the
      portfolio of gross notes receivable and loans held for investment, partially
      offset by an increase in non-accrual loans held for investment, during the
      three
      months ended March 31, 2007 compared to the three months ended March 31,
      2006.




Purchase
      discount earned decreased by $565,000, or 29%, to $1.4 million during the first
      quarter of 2007 from $2.0 million during the first quarter of 2006. This
      decrease resulted primarily from less purchase discount available for accretion
      of discount from portfolios purchased in 2005 and 2006, a lower balance of
      purchase discount available for accretion from pre-2005 acquisitions and a
      slower rate of prepayments. We received $61.0 million of principal payments
      from
      notes receivable during the three months ended March 31, 2007, compared with
      $68.0 million of principal payments during the same period in 2006.




There
      were no gains on sales of notes receivable as the Company did not sell any
      notes
      receivable during the three months ended March 31, 2007. The Company realized
      a
      gain of $69,000 from sales of $161,000 of non-performing notes receivable during
      the three months ended March 31, 2006.




Gain
      on
      sale of originated loans, which included a negative mark-to-market adjustment
      of
      $126,000 on “Alt-A” loans held for sale, decreased by $163,000, or 98%, to
      $3,000 during the three months ended March 31, 2007, from $166,000 during the
      three months ended March 31, 2006. The Company sold $5.2 million of originated
      loans during the three months ended March 31, 2007, compared with $6.8 million
      of loans during the three months ended March 31, 2006. The average gain on
      loans
      sold, exclusive of the mark-to-market adjustment, was 3.35% during the first
      quarter of 2007 compared with an average gain of 2.46% during the first quarter
      of 2006. In the first quarter of 2007, the Company suspended its program to
      sell
      a portion of newly originated Liberty Loans on a whole-loan, servicing-released
      basis due to unfavorable market conditions.




Gain
      on
      sale of OREO decreased by $680,000, or 85%, to $121,000 during the three months
      ended March 31, 2007, from $802,000 during the three months ended March 31,
      2006. We sold 129 OREO properties with an aggregate carrying value of $8.4
      million during the first quarter of 2007, as compared to 133 OREO properties
      in
      the aggregate amount of $7.6 million during the first quarter of 2006. The
      decrease in gain on sale of OREO properties was due in part to the sale of
      properties in certain parts of the country where housing values have
      declined.




Prepayment
      penalties and other income (principally late charges and other servicing fees)
      decreased by $105,000, or 5%, to $2.1 million during the three months ended
      March 31, 2007 from $2.2 million during the corresponding period last year.
      This
      decrease was primarily due to a somewhat slower rate of loan pay offs in general
      and fewer pay offs from states where prepayment penalties are allowed,
      principally of originated loans, during the three months ended March 31, 2007,
      as compared with the corresponding period in 2006. This decrease was partially
      offset by increased late charges resulting primarily from the growth in the
      size
      of our loan portfolios.




***Operating
      Expenses.*** Operating expenses increased by $10.4 million, or 29%, to $45.9 million during
      the first quarter of 2007 from $35.5 million during the same period in 2006.
      Total operating expenses include interest expense, collection, general and
      administrative expenses, provisions for loan losses, amortization of deferred
      financing costs and depreciation expense.




Interest
      expense increased by $7.1 million, or 29%, to $31.6 million during the three
      months ended March 31, 2007, from $24.5 million during the three months ended
      March 31, 2006. This increase was the result of the increase in total debt,
      which was $1.69 billion as of March 31, 2007 as compared with $1.35 billion
      as
      of March 31, 2006, reflecting additional borrowings to fund the growth in total
      assets during this period. In addition, our average cost of funds during the
      three months ended March 31, 2007 increased to 7.72% from 7.39% during the
      three
      months ended March 31, 2006, reflecting the continued rise in short-term
      interest rates and its impact on our interest-rate sensitive
      borrowings.




30




Collection,
      general and administrative expenses increased by $946,000, or 12%, to $8.9
      million during the three months ended March 31, 2007, from $7.9 million during
      the corresponding period in 2006, principally reflecting the growth of the
      Company and the increase in total assets, and $513,000 of operating expenses
      incurred by the wholesale origination unit that the Company acquired in late
      February 2007. Collection, general and administrative expenses as a percentage
      of average assets decreased to 2.07% during the three months ended March 31,
      2007 from 2.32% during the three months ended March 31, 2006. Salaries and
      employee benefits expenses increased by $542,000 or 15%, principally reflecting
      an increase in the number of employees, primarily due to the growth of our
      Company and the addition of employees added from the acquisition of the
      wholesale origination unit during the first quarter of 2007. We ended the first
      quarter of 2007 with 306 employees, which included 62 employees from the
      acquired wholesale origination unit, as compared to 219 at the end of the first
      quarter of 2006. The cost of outside services, such as appraisals and title
      searches, incurred in servicing delinquent loans increased by $261,000 or 122%,
      to $475,000 during the three months ended March 31, 2007 compared to $213,000
      for the three months ended March 31, 2006 due to increases in foreclosure
      activity as a result of a larger total portfolio of notes receivable and certain
      loans purchased in various stages of delinquency and foreclosure. Legal fees,
      principally relating to increased activity with respect to foreclosures,
      increased by $330,000, or 32%, to $1.4 million from $1.0 million during the
      same
      period last year. Professional fees decreased by $63,000, or 10%, to $538,000
      from $601,000 due to decreased recruitment fees compared to same period last
      year. Loan portfolio acquisition costs decreased by $329,000, or 41%, from
      $793,000 during the three months ended March 31, 2006 due to fewer direct costs
      associated with both portfolios purchased and portfolios considered for purchase
      compared to the same period last year. All other general and administrative
      expenses, including rent, insurance, licenses, maintenance and support for
      our
      computer systems, increased by $364,000, which is attributable to the growth
      of
      our business.




The
      provision for loan losses increased by $2.5 million, or 132%, to $4.3 million
      during the three months ended March 31, 2007, from $1.9 million during the
      three
      months ended March 31, 2007. This increase was primarily due to higher than
      expected default rates experienced in certain pools of loans purchased in
      mid-2004 and reductions in estimated values on new and existing properties
      acquired through foreclosure.




Amortization
      of deferred financing costs decreased by $132,000 or 15%, to $776,000 during
      the
      first quarter of 2007 from $908,000 during the first quarter of 2006. This
      decrease resulted primarily from a slower rate of prepayments on all portfolios
      of loans, which caused reduced prepayments of borrowed funds, and a reduction
      of
      the origination fee charged by our lender to fund portfolio acquisitions. The
      origination fee for term debt was reduced from 0.75% to 0.50% for loans acquired
      after June 23, 2006.




Depreciation
      expenses increased by $36,000, or 11%, to $348,000 in the first quarter of
      2007.
      This increase during the three months ended March 31, 2007 was principally
      due
      to $485,000 in fixed assets purchased with the acquisition of the wholesale
      originations unit and new enhancements to our mortgage origination
      software.




Our
      pre-tax income decreased by $6.5 million, or 207%, to a net loss of $2.0 million
      during the three months ended March 31, 2007, from income of $1.8 million during
      the three months ended March 31, 2006 for the reasons set forth
      above.




31




During
      the three months ended March 31, 2007, the Company had a tax benefit of $1.5
      million, as compared to a tax provision of $1.4 million during the three months
      ended March 31, 2006. The effective tax rate for the three months ended March
      31, 2006 was 43%.




**Liquidity
      and Capital Resources**




***General***




During
      the first quarter of 2007, we purchased 2,114 loans, consisting primarily of
      first and second mortgages, with an aggregate face value of $146.3 million
      at an
      aggregate purchase price of $125.4 million, or 86% of face value, and we
      originated $91.2 million of loans. All purchased loans were funded through
      borrowings under our master credit facility. Originations are initially funded
      through borrowings under our warehouse facility, and loans originated for
      portfolio are subsequently funded with term debt under our Tribeca master credit
      facility after transfer from the warehouse facility. In the first quarter of
      2006, Tribeca and certain of its subsidiaries entered into master credit and
      security agreements with each of our principal lender, Sky Bank, and BOS (USA)
      Inc., an affiliate of Bank of Scotland, the proceeds of which were used to
      refinance and consolidate certain term loans with our principal
      lender.




We
      have
      one principal source of external funding to meet our liquidity requirements,
      in
      addition to the cash flow provided from borrower payments of interest and
      principal on mortgage loans. See “-
      Borrowings.” In addition, we have the ability to sell loans in the secondary
      market. We sell pools of acquired mortgage loans and newly originated Liberty
      Loans from time to time, and we sell loans that we originate specifically for
      sale into the secondary market on a regular basis.




In
      December 2006, Sky Bank and Huntington Bancshares Inc. announced a pending
      merger, expected to close in the third quarter of 2007, pending regulatory
      and
      shareholder approvals. The combined bank, which will be the successor to our
      credit facilities provided by Sky Bank, would have approximately $54 billion
      in
      assets and will be the 24th largest bank holding company headquartered in the
      United States.




As
      a
      result of the growth of the loan portfolios, management continues to explore
      potential additional sources of funding for financing portfolio acquisitions
      and
      loan originations. We have been evaluating the feasibility of securitizing
      certain acquired and originated loans in order to seek a lower cost funding
      alternative and possibly to reduce somewhat the short-term interest sensitivity
      of our borrowings. In addition, we have been actively seeking additional term
      debt funding alternatives with banks, financial institutions and other entities
      in order to expand our borrowing capabilities.




***Short-term
      Investments.*** The
      Company’s short-term investment portfolio includes U.S. treasury bills,
      investment-grade commercial paper and money market accounts. The Company’s
      investment policy is structured to provide an adequate level of liquidity in
      order to meet normal working capital needs and expansion of the loan portfolio.
      At March 31, 2007, the Company had short-term investments of $20.6
      million.




***Cost
      of Funds.*** As of
      March 31, 2007, we had total borrowings of $1.69 billion, of which $1.61 billion
      was under our term loan facilities and an aggregate of $83.5 million was under
      our warehouse facilities. Substantially all of the debt under our term loan
      facilities was incurred in connection with the purchase and origination of,
      and
      is secured by, our acquired notes, originated loans held for investment and
      OREO
      portfolios. At March 31, 2007, approximately $4.2 million of our term debt
      accrues interest at a rate of prime plus a margin of 0.50% to 1.75%, $152.0
      million accrues interest at the FHLB 30-day LIBOR advance rate plus 2.30%,
      $275.3 million accrues interest at the FHLB 30-day LIBOR advance rate plus
      2.35%, $1.11 billion accrues interest at the FHLB 30-day LIBOR advance rate
      plus
      2.50%, $65.1 million accrues interest at the FHLB 30-day LIBOR advance rate
      plus
      2.00%, $361,000 accrues interest at the FHLB 30-day LIBOR advance rate plus
      3.375% and $861,000 accrues interest at the FHLB 30-day LIBOR advance rate
      plus
      3.875%. Our warehouse facilities are utilized to fund Tribeca’s originations of
      loans and the acquisition of loans through our “Flow Acquisitions Group” pending
      sale to others or pending funding under our term debt facilities for loans
      to be
      held in portfolio. The interest rate on the warehouse debt was 7.75% at March
      31, 2007, compared with a rate of 7.25% at March 31, 2006. At March 31, 2007,
      the weighted average interest rate on term debt was 7.86%.




32




***Cash
      Flow from Operating, Investing and Financing
      Activities***




Liquidity
      represents our ability to obtain adequate funding to meet our financial
      obligations. Our liquidity position is affected by mortgage loan purchase and
      origination volume, mortgage loan payments, including prepayments, loan
      maturities and the amortization and maturity structure of borrowings under
      our
      term loan facilities. In accordance with the terms of our credit facilities
      with
      our lenders, we receive a cash allowance that is adequate to meet our operating
      expenses.




At
      March
      31, 2007, we had cash and cash equivalents of $6.7 million compared with $4.0
      million at December 31, 2006. Restricted cash of $36.3 million and $32.7 million
      at March 31, 2007 and December 31, 2006, respectively, was restricted under
      our
      credit agreements and lockbox facility with our lead lending bank, Sky
      Bank.




Substantially
      all of our assets are invested in our portfolios of notes receivable, loans
      held
      for investment, OREO and loans held for sale. Primary sources of our cash flow
      for operating and investing activities are borrowings under our debt facilities,
      collections of interest and principal on notes receivable and loans held for
      investment and proceeds from sales of notes and OREO properties. Primary uses
      of
      cash include purchases of notes receivable, origination of loans and for
      operating expenses. We rely significantly upon our lender and the other banks
      that participate in the loans made to us by our lender to provide the funds
      necessary for the purchase of notes receivable portfolios and the origination
      of
      loans. While we have historically been able to finance these purchases and
      originations, we have not had committed loan facilities in significant excess
      of
      the amount we currently have outstanding under our credit
      facilities.




Net
      cash
      used in operating activities was $12.4 million as of March 31, 2007, compared
      with cash provided of $6.3 million during the three months ended March 31,
      2006.
      The decrease in cash provided by operating activities during the three months
      ended March 31, 2007 was due primarily to an increase in the volume of loans
      originated for sale in the secondary market.




Net
      cash
      used in investing activities was $81.5 million in the three months ended March
      31, 2007, compared to $87.5 million of cash used in the three months ended
      March
      31, 2006. The decrease in cash used during the three months ended March 31,
      2007
      was primarily due to a $25.8 million decrease in loans held for investment
      due
      to fewer loans originations. This decrease was partially offset by a $29.5
      million increase in the purchase of notes receivable and an $8.0 million
      reduction in the increase in restricted cash compared to the same period last
      year.




Net
      cash
      provided by financing activities increased to approximately $96.7 million during
      the three months ended March 31, 2007, from $80.9 million provided by financing
      activities during the three months ended March 31, 2006. Proceeds from financing
      agreements increased $14.2 million while payoffs of financing agreements
      decreased $22.4 million, both due to the addition of a Flow Warehouse line
      in
      August 2006 that is used to temporarily warehouse loan acquisitions from our
      flow acquisitions channel pending term debt financing. These changes were
      partially offset by an $18.1 million decrease in the repurchase obligation
      in
      the first quarter of 2007, which was funded by an increase in the proceeds
      from
      notes payable.




33




**Borrowings**




As
      of
      March 31, 2007, the Company owed an aggregate of $1.69 billion under several
      credit facilities with our lenders. These borrowings are shown in the Company’s
      financial statements as “Notes payable” (referred to as “term loans” herein) and
“Financing agreements” (referred to as the “Warehouse Facility” or “Warehouse
      Facilities” herein).




***Master
      Credit Facilities - Term Loans***




***General.*** ** In
      October 2004, the Company, and its finance subsidiaries, excluding Tribeca,
      entered into a master credit and security agreement (the “Franklin Master Credit
      Facility”) with Sky Bank, an Ohio banking corporation, which we refer to as our
      lender or Sky Bank. Under this master credit facility, we request term loans
      to
      finance the purchase of residential mortgage loans or refinance existing
      outstanding loans under this facility. The facility does not include a
      commitment to additional lendings, which are therefore subject to our lender’s
      discretion as well as any regulatory limitations to which our lender is subject.
      The facility has been extended by Sky Bank and currently expires on June 30,
      2007.




In
      February 2006, Tribeca and certain of its subsidiaries entered into the Tribeca
      Master Credit Facility with Sky Bank, pursuant to which certain Tribeca
      subsidiaries may borrow term loans to finance their origination of loans Tribeca
      previously financed under its warehouse line of credit with Sky Bank and
      consolidate and refinance prior term loans made by Sky Bank to such
      subsidiaries. The facility does not include a commitment for additional
      lendings, which is subject to our lender’s discretion, as well as any regulatory
      limitations to which Sky Bank is subject. The facility expires on February
      28,
      2008.




***Interest
      Rates and Fees.*** Interest
      on the term loans is payable monthly at a floating rate equal to the highest
      Federal Home Loan Bank of Cincinnati 30-day advance rate as published daily
      by
      Bloomberg under the symbol FHL5LBRI, or the “30-day advance rate,” plus the
      applicable margin in effect prior to August 2006 as follows:




**For
                Loans Funded****Prior
                to July 1, 2005**
            
            **On
                or After July 1, 2005**If
                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 Sky Bank Financing Arrangements***




In
      August
      2006, the master credit facilities were modified to reduce the interest rate
      on
      all debt originated under the master credit facilities before July 1, 2005
      by 25
      basis points effective October 1, 2006. This rate was lowered by an additional
      25 basis points effective January 1, 2007.






34


***December
        2006*** **Modifications to Sky Bank Financing Arrangements**
  In
        December 2006, the master credit facilities were modified to change the interest
        rate on term loans funded under the master credit facilities after November
        14,
        2006 for loans originated by Tribeca and purchases of second mortgages by
        the
        Company to the Federal Home Loan Bank of Cincinnati 30-day advance rate as
        published daily by Bloomberg under the symbol FHL5LBRI (the “30-day advance
        rate”), plus the applicable margin as follows:


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





Additionally,
      the interest rate payable to Sky Bank on term loans funded under the Franklin
      Master Credit Facility after November 14, 2006 in respect of purchases of first
      mortgages by the Company will be the 30-day advance rate, plus the applicable
      margin as follows:




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





As
      a
      result of these modifications, effective January 1, 2007, the interest rate
      on
      term borrowings under our Master Credit Facilities is based on a floating rate
      equal to the 30-day advance rate, plus the applicable margin as
      follows:




**For
      Loans Funded**


**Prior
                to November 15, 2006**
            
            
            **On
                or After November 15, 2006****Purchase
                of First Mortgages**
            
            
            **Tribeca
                Originated Loans/**
              **Second
                Mortgage Purchases**If
                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




Upon
      each
      closing of a loan after June 23, 2006, we are required to pay an origination
      fee
      equal to 0.50% of the amount of the loan unless otherwise agreed to by our
      lender. For loans funded between July 1, 2005 and June 23, 2006, under the
      Franklin Master Credit Facility, the origination fee paid was 0.75% of the
      amount of the loan (0.50% for loans funded under the Tribeca Master Credit
      Facility), and for loans funded prior to July 1, 2005, the origination fee
      paid
      was 1% of the amount of the loan unless otherwise agreed to by our
      lender.




***Principal;
      Prepayments; Termination of Commitments*** **.** The
      unpaid principal balance of each loan is amortized over a period of twenty
      years, but matures three years after the date the loan was made. Historically,
      our lender has agreed to extend the maturities of such loans for additional
      three-year terms upon their maturity. We are required to make monthly payments
      of the principal on each of our outstanding loans.




In
      the
      event there is a material and adverse breach of the representations and
      warranties with respect to a pledged mortgage loan that is not cured within
      30
      days after notice by our lender, we will be required to repay the loan with
      respect to such pledged mortgage loan in an amount equal to the price at which
      such mortgage loan could readily be sold (as determined by our
      lender).




***Covenants;
      Events of Default.*** The
      Master Credit Facilities contain affirmative, negative and financial covenants
      customary for financings of this type, including, among other things, a covenant
      under the Franklin Master Credit Facility that we and our subsidiaries together
      maintain a minimum net worth of at least $10 million; and, a covenant under
      the
      Tribeca Master Credit Facility that Tribeca and its subsidiaries, together,
      maintain a minimum net worth of at least $3.5 million and rolling four-quarter
      pre-tax net income of at least $750,000. These master credit facilities contain
      events of default customary for facilities of this type (with customary grace
      and cure periods, as applicable). Both Franklin and Tribeca are in compliance
      with such covenants as of March 31, 2007.




35




***Security*** **.** ****** Our
      obligations under the Franklin Master Credit facility are secured by a first
      priority lien on loans that are financed by proceeds of loans made to us under
      the facility. The collateral securing each loan cross-collateralizes all other
      loans made under this facility. In addition, pursuant to a lockbox arrangement,
      our lender is entitled to receive substantially all sums payable to us in
      respect of any of the collateral. Tribeca’s and its subsidiary borrowers’
obligations under the Tribeca Master Credit Facility are secured by a first
      priority lien on loans originated by Tribeca or such subsidiary that are
      financed or refinanced by proceeds of loans made to Tribeca or its borrowers
      under the facility. The collateral securing each loan cross-collateralizes
      all
      other loans made under this facility. In addition, pursuant to a lockbox
      arrangement, Sky Bank is entitled to receive substantially all sums payable
      to
      Tribeca and any subsidiary borrower in respect of any of the
      collateral.




***Bank
      of Scotland Term Loan***




In
      March
      2006, Tribeca and one of Tribeca’s subsidiaries (the “Tribeca Subsidiary
      Borrower”) entered into a $100 million Master Credit and Security Agreement (the
“BOS Loan”) with BOS (USA) Inc., an affiliate of Bank of Scotland. $98.2 million
      of proceeds of the BOS Loan were used to consolidate and refinance prior term
      loans made to certain Tribeca subsidiaries. Interest on the BOS Loan is
      payable monthly at a floating rate equal to the 30-day advance rate plus an
      applicable margin as follows:




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




The
      unpaid principal balance of the BOS Loan will be amortized over a period of
      20
      years, but matures in March 2009. The Tribeca Subsidiary Borrower is required
      to
      make monthly amortization payments and payments of interest on the BOS
      Loan.




The
      facility contains affirmative, negative and financial covenants customary for
      financings of this type, including, among other things, covenants that require
      Tribeca and its subsidiaries, together, to maintain a minimum net worth of
      at
      least $3.5 million and rolling four-quarter pre-tax net income of $750,000.
      The
      facility contains events of default customary for facilities of this
      type.




Tribeca’s
      and the Tribeca subsidiary borrower’s obligations under the facility are secured
      by (i) a first priority lien on loans acquired by the Tribeca Subsidiary
      Borrower that are refinanced by the proceeds of the BOS Loan and (ii) a second
      priority lien on collateral securing loans made to Tribeca or its
      subsidiaries under the Tribeca Master Credit Facility described above. In
      addition, pursuant to a lockbox arrangement, BOS is entitled to receive
      substantially all sums payable to Tribeca and the Tribeca Subsidiary Borrower
      in
      respect of any of the primary collateral under the facility. Tribeca’s BOS Loan
      and the Tribeca Master Credit Facility are cross-collateralized.




36


***Warehouse
      Facilities***




***Tribeca
      Warehouse*** **.** In
      October 2005, Tribeca entered into a Warehousing Credit and Security Agreement
      (the “Tribeca Warehouse Facility”) with our lender, which replaced previous
      warehouse lending agreements. In April 2006, our lender increased the commitment
      to $60 million. The facility has been extended by our lender to June 30,
      2007.




Interest
      on advances is payable monthly at a rate per annum equal to the greater of
      (i) a
      floating rate equal to the Wall Street Journal Prime Rate minus 50 basis points
      or (ii) 5%.




The
      Tribeca Warehouse Facility is secured by a lien on all of the mortgage loans
      delivered to our lender or in respect of which an advance has been made as
      well
      as by all mortgage insurance and commitments issued by insurers to insure or
      guarantee pledged mortgage loans. Tribeca also assigns all of its rights under
      third-party purchase commitments covering pledged mortgages and the proceeds
      of
      such commitments and its rights with respect to investors in the pledged
      mortgages to the extent such rights are related to pledged mortgages. In
      addition, we have provided a guaranty of Tribeca’s obligations under the Tribeca
      Warehouse Facility, which is secured by substantially all of Tribeca’s personal
      property. As of March 31, 2007, Tribeca had approximately $8.8 million available
      under this facility.




***Flow
      Warehouse*** **.** In
      August
      2006, we entered into a new $40 million Flow Warehousing Credit and Security
      Agreement (the “Flow Warehouse Facility”) for a term of one year with our lender
      to accumulate loans acquired by the Company on a flow basis prior to
      consolidating such loans into term debt.




Interest
      on advances is payable monthly at a rate per annum equal to a floating rate
      equal to the Wall Street Journal Prime Rate minus 50 basis points.




The
      Flow
      Warehouse Facility is secured by a lien on all of the mortgage loans delivered
      to our lender or in respect of which an advance has been made as well as by
      all
      mortgage insurance and commitments issued by insurers to insure or guarantee
      pledged mortgage loans. The Company also assigns all of its rights under
      third-party purchase commitments covering pledged mortgages and the proceeds
      of
      such commitments and its rights with respect to investors in the pledged
      mortgages to the extent such rights are related to pledged mortgages. In
      addition, we have provided a guaranty of the Company’s obligations under the
      Flow Warehouse Facility, which is secured by substantially all our personal
      property. As of March 31, 2007, we had approximately $10.3 million available
      under this facility.




***Interest
      Rate Caps***




On
      August
      29, 2006, the Company purchased a $300 million (notional amount) one-month
      LIBOR
      cap with a strike price of 5.75% at a price of $101,000, and on August 30,
      2006,
      the Company purchased a $500 million (notional amount) one-month LIBOR cap
      with
      a strike price of 6.0% at a price of $60,000. Both cap agreements are
      non-amortizing and will be in effect for one year. The cap resets match the
      interest rate resets on a portion of the Company’s term debt. These caps will
      limit the Company's exposure to increased borrowing costs on $300 million of
      term debt should the 30-day LIBOR rate exceed 5.75%, and on a total of $800
      million of term debt should such rate exceed 6.0%. The interest rate caps are
      not designated as hedging instruments for accounting purposes; therefore, a
      change in the fair market value of the caps is recognized as gain or loss in
      earnings in the current period.




37


The
      following table presents the contract/notional and fair value amounts of all
      derivative transactions at March 31, 2007:





**Interest
                Rate Caps**
            
            **Notional
                Amount**
            
            **Expiration
                Date**
            
            **Premium
                Paid**
            
            **Fair
                Value**Cap
                1
            
            $
            300,000,000
            
            
            August
                31, 2007
            
            $
            101,000
            
            $
            325Cap
                2
            
            
            500,000,000
            
            
            August
                31, 2007
            
            
            60,000
            
            
            683Total
            
            $
            800,000,000
            
            
            
            
            $
            161,000
            
            $
            1,008





**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




We
      are
      exposed to various types of market risk in the normal course of business,
      including the impact of interest rate changes and changes in corporate tax
      rates. A material change in these rates could adversely affect our operating
      results and cash flows.




**Interest
      Rate Risk**




Interest
      rate fluctuations can adversely affect our operating results and present a
      variety of risks, including the risk of a mismatch between the repricing of
      interest-earning assets and borrowings, variances in the yield curve and
      changing prepayment rates on notes receivable, loans held for investment and
      loans held for sale.




Interest
      rates are highly sensitive to many factors, including governmental monetary
      policies and domestic and international economic and political conditions.
      Conditions such as inflation, recession, unemployment, money supply and other
      factors beyond our control may also affect interest rates. Fluctuations in
      market interest rates are neither predictable nor controllable and may have
      a
      material adverse effect on our business, financial condition and results of
      operations.




The
      Company’s operating results will depend in large part on differences between the
      interest earned on its assets and the interest paid on its borrowings. Most
      of
      the Company’s assets, consisting primarily of mortgage notes receivable,
      generate fixed returns and have remaining contractual maturities in excess
      of
      five years, while the majority of originated loans held for investment generate
      fixed returns for the first two years and six-month adjustable returns
      thereafter. We fund the origination and acquisition of these assets with
      borrowings, which have interest rates that are based on the monthly Federal
      Home
      Loan Bank of Cincinnati (“FHLB”) 30-day advance rate. In most cases, the
      interest income from our assets will respond more slowly to interest rate
      fluctuations than the cost of our borrowings, creating a mismatch between
      interest earned on our interest-yielding assets and the interest paid on our
      borrowings. Consequently, changes in interest rates, particularly short-term
      interest rates, will significantly impact our net interest income and,
      therefore, net income. Our borrowings bear interest at rates that fluctuate
      with
      the FHLB Bank of Cincinnati 30-day advance rate or, to a lesser extent, the
      prime rate. Based on approximately $1.69 billion of borrowings under term loan
      and warehouse facilities outstanding at March 31, 2007, a 1% instantaneous
      and
      sustained increase in both FHLB and prime rates could increase quarterly
      interest expense by as much as approximately $4.2 million, pre-tax, which would
      negatively impact our quarterly after-tax net income. Due to our
      liability-sensitive balance sheet, increases in these rates will decrease both
      net income and the market value of our net assets. During the period from
      January 1, 2007 to August 31, 2007, the offsetting benefit of the Company’s
      interest rate caps could reduce the quarterly negative impact of a 1%
      instantaneous and sustained increase in both FHLB and prime rates by
      approximately $913,000, pre-tax.




38




The
      value
      of our assets may be affected by prepayment rates on investments. Prepayment
      rates are influenced by changes in current interest rates and a variety of
      economic, geographic and other factors beyond our control. Consequently, such
      prepayment rates cannot be predicted with certainty. When we originate and
      purchase mortgage loans, we expect that such mortgage loans will have a measure
      of protection from prepayment in the form of prepayment lockout periods or
      prepayment penalties. In periods of declining mortgage interest rates,
      prepayments on mortgages generally increase. If general interest rates decline
      as well, the proceeds of such prepayments received during such periods are
      likely to be reinvested by us in assets yielding less than the yields on the
      investments that were prepaid. In addition, the market value of mortgage
      investments may, because of the risk of prepayment, benefit less from declining
      interest rates than other fixed-income securities. Conversely, in periods of
      rising interest rates, prepayments on mortgages generally decrease, in which
      case we would not have the prepayment proceeds available to invest in assets
      with higher yields. Under certain interest rate and prepayment scenarios we
      may
      fail to recoup fully our cost of acquisition of certain
      investments.




**Real
      Estate Risk**




Residential
      property values are subject to volatility and may be affected adversely by
      a
      number of factors, including, but not limited to, national, regional and local
      economic conditions, which may be adversely affected by industry slowdowns
      and
      other factors; local real estate conditions (such as the supply of housing
      or
      the rapid increase in home values). Decreases in property values reduce the
      value of the collateral and the potential proceeds available to a borrower
      to
      repay our mortgage loans, which could cause us to suffer losses on the ultimate
      disposition of foreclosed properties.




We
      purchase and originate principally fixed and adjustable rate residential
      mortgage loans, which are secured primarily by the underlying single-family
      properties. Because the vast majority of our loans are to non-prime borrowers,
      delinquencies and foreclosures are substantially higher than those of prime
      mortgage loans, and if not serviced actively and effectively could result in
      an
      increase in losses on dispositions of properties acquired through foreclosure.
      In addition, a decline in real estate values would reduce the value of the
      residential properties securing our loans, which could lead to an increase
      in
      borrower defaults, reductions in interest income and increased losses on the
      disposition of foreclosed properties.




**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**




**Disclosure
      Controls and Procedures**




The
      Company’s management, with the participation of the Company’s Chief Executive
      Officer and Chief Financial Officer, has evaluated the effectiveness of the
      Company’s disclosure controls and procedures (such term is defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”) as of the end of the period covered by this Quarterly
      Report on Form 10-Q. Based upon that evaluation, the Corporation’s Chief
      Executive Officer and Chief Financial Officer concluded that the Corporation's
      disclosure controls and procedures were effective, as of the end of the
      period covered by this report.




**Changes
      in Internal Controls over Financial Reporting**




There
      have been no changes in the Company’s internal control over financial reporting
      during the quarter ended March 31, 2007 that have materially affected, or are
      reasonably likely to materially affect, such internal control over financial
      reporting.




39




**PART
      II**


**OTHER
      INFORMATION**





**ITEM
                1.**
            **LEGAL
                PROCEEDINGS**




We
      are
      involved in routine litigation matters generally incidental to our business,
      which primarily consist of legal actions related to the enforcement of our
      rights under mortgage loans we hold, none of which is individually or in the
      aggregate material. In addition, because we originate and service mortgage
      loans
      throughout the country, we must comply with various state and federal lending
      laws, rules and regulations and we are routinely subject to investigation and
      inquiry by regulatory agencies, some of which arise from complaints filed by
      borrowers, none of which is individually or in the aggregate
      material.




**ITEM
                1A.**
            **RISK
                FACTORS**




There
      have been no material changes from the risk factors previously disclosed in
      Item
      1A of our Annual Report on Form 10-K for the year ended December 31, 2006.
      The
      risk factors discussed in detail in the Company’s Form 10-K include the
      following:




**Risks
      Related to Our Business**




·
            If
                we are not able to identify and acquire portfolios of “scratch and dent”
                residential mortgage loans on terms acceptable to us, our revenues
                and
                profitability could be materially
                reduced.




·
            We
                may not be able to successfully market our residential mortgage loan
                origination products to non-prime
                borrowers.




·
            Our
                business is dependent on external financing, and we currently receive
                the
                substantial majority of our financing from a single lender. If our
                principal lender ceases to provide financing to us or increases the
                cost
                to us of such financing and we are unable to access alternative external
                sources of financing on favorable terms or at all, we would not be
                able to
                fund and grow our operations and our business will be materially
                harmed.




·
            The
                pending merger of our principal lender, Sky Bank, with Huntington
                Bancshares Inc., could harm our ability to borrow funds to support
                our
                business.




·
            Our
                ability to fund increased operating expenses depends on the agreement
                of
                our principal lender to increases in our operating
                allowance.




·
            If
                our principal lender ceases to renew our maturing loans for additional
                terms or provide us with refinancing opportunities, or we are unable
                to
                secure refinancing opportunities with other lenders, our indebtedness
                will
                become due and payable upon the contractual maturity of each
                borrowing.




·
            Our
                credit facilities require us to observe certain covenants, and our
                failure
                to satisfy such covenants could render us insolvent or preclude our
                seeking additional financing from this or other
                sources.




·
            Our
                business is sensitive to, and can be materially affected by, changes
                in
                interest rates.




40




·
            A
                prolonged economic slowdown or a lengthy or severe recession could
                harm
                our operations, particularly if it results in a decline in the real
                estate
                market.




·
            The
                residential mortgage origination business is a cyclical industry,
                with
                volumes recently reaching their highest levels ever, volumes and
                profitability declining in 2006 and continuing to decline in the
                first quarter of 2007, which could reduce the number of mortgage
                loans we
                originate and could adversely impact our
                business.




·
            Our
                reliance on cash-out refinancings as a significant source of our
                origination activities increases the risk that our earnings will
                be harmed
                if the demand for this type of refinancing
                declines.




·
            When
                we acquire S&D loans, the price we pay is based on a number of
                assumptions. A material difference between the assumptions we use
                in
                determining the value of S&D loans we acquire and our actual
                experience could harm our financial
                position.




·
            We
                may experience higher loan losses than we have reserved for in our
                financial statements.




·
            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.




·
            If
                we do not manage our growth effectively, our financial performance
                could
                be harmed.




·
            The
                inability to attract and retain qualified employees could significantly
                harm our business.




·
            We
                may have to outsource a portion of the servicing of the loans we
                hold due
                to capacity constraints or lack of sufficient
                personnel.




·
            We
                face intense competition that could adversely impact our market share
                and
                our revenues.




·
            A
                significant amount of our mortgage loan originations are secured
                by
                property in New York and New Jersey, and our operations could be
                harmed by
                economic downturns or other adverse events in these
                states.




·
            Competition
                with other lenders for the business of independent mortgage brokers
                could
                negatively affect the volume and pricing of our originated
                loans.




·
            We
                may not be adequately protected against the risks inherent in subprime
                residential mortgage loans.




·
            We
                are subject to losses due to fraudulent and negligent acts on the
                part of
                loan applicants, mortgage brokers, sellers of loans we acquire, vendors
                and our employees.




·
            An
                interruption in or breach of our information systems may result in
                lost
                business and increased expenses.




·
            The
                success and growth of our business will depend on our ability to
                adapt to
                and implement technological changes to remain competitive, and any
                failure
                to do so could result in a material adverse effect on our
                business.




41




·
            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.




·
            If
                we do not obtain and maintain the appropriate state licenses we will
                not
                be allowed to originate, purchase and service mortgage loans in some
                states, which would adversely affect our
                operations.




**Risks
      Related to the Restatement of Our Financial Statements**




·
            We
                may become subject to liability and incur increased expenditures
                as a
                result of our restatement of our financial
                statements.




·
            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 originate, purchase, 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 increase our borrowing costs and negatively
                affect
                the market for whole-loans and mortgage-backed
                securities.




·
            We
                may be subject to fines or other penalties based upon the conduct
                of our
                independent brokers.




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




·
            If
                many of our borrowers become subject to the Servicemembers Civil
                Relief
                Act of 2003, our cash flows and interest income may be adversely
                affected.




**Risks
      Related to Our Securities**




·
            Thomas
                J. Axon effectively controls our company, substantially reducing
                the
                influence of our other
                stockholders.




·
            Our
                organizational documents, Delaware law and our credit facility 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.




42




·
            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.




Additional
      information on these risk factors is contained in the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2006.




**ITEM
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**




None.




**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**




None.




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




None.




**ITEM
                5.**
            **OTHER
                INFORMATION**




None.




43


**ITEM
                6.**
            **EXHIBITS**




Exhibit
                Number3.1
            
            Fifth
                Amended and Restated Certificate of Incorporation. Incorporated by
                reference to Appendix A to the Registrant’s Definitive Information
                Statement on Schedule 14C, filed with the Securities and Exchange
                Commission (the “Commission”) on January 20, 2005.3.2
            
            Amended
                and Restated By-laws. Incorporated by reference to Appendix B to
                the
                Registrant’s Definitive Information Statement on Schedule 14C, filed with
                the Commission on January 20, 2005.10.1
            
            Asset
                Purchase and Sale Agreement, dated as of February 14, 2007, between
                The
                New York Mortgage Company, LLC and Tribeca Lending Corp. Incorporated
                by
                reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K
                for the fiscal year ended December 31, 2006 (the
                “10-K”).10.2
            
            Employment
                Agreement, dated as of February 22, 2007, between the Registrant
                and
                Richard W. Payne III. Incorporated by reference to Exhibit 10.38
                to the
                10-K.10.3
            
            Assignment
                and Assumption of Lease Landlord Consent and Lease Modification Agreement,
                dated as of February 22, 2007, among The New York Mortgage Company,
                LLC,
                Tribeca Lending Corp., and First States Investors 5200 LLC. Incorporated
                by reference to Exhibit 10.39 to the 10-K.10.4*
            
            First
                Amendment to the Employment Agreement, dated as of February 1, 2006,
                between the Registrant and William F. Sullivan, dated April 28,
                2006.10.5*
            
            Second
                Amendment to the Employment Agreement, dated as of February 1, 2006,
                between the Registrant and William F. Sullivan, dated August 17,
                2006.31.1*
            
            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*
            
            Certification
                of Chief Executive Officer of the Registrant in accordance with Section
                906 of the Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
                of Chief Financial Officer of the Registrant in accordance with Section
                906 of the Sarbanes-Oxley Act of
                2002.


__________________




*  Filed
      herewith.




44


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.





U May
      15,
      2007


FRANKLIN
              CREDIT
              MANAGEMENT CORPORATIONBy:
            /s/ ALEXANDER
              GORDON JARDINUAlexander
                Gordon Jardin
              Chief
                Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act, this report has been signed
      below by the following persons on behalf of the registrant and in the capacity
      and on the dates indicated.




Signature
            
            Title
            
            Date/s/
              ALEXANDER GORDON JARDIN
            
            Chief
              Executive Officer
            
            May
              15,
              2007Alexander
                Gordon Jardin
              (Principal
                Executive Officer)/s/
              PAUL D. COLASONOU
            
            Executive Vice President
              and
                Chief Financial
                OfficerU
            
            May
              15, 2007Paul
                D. Colasono
              (Principal
                Financial Officer)




45