##### Table of Contents



UNITED STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-17771
 FRANKLIN CREDIT HOLDING CORPORATION
  Delaware
    
    26-3104776(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)101 Hudson StreetJersey City, New Jersey
    
    07302(Address of Principal
    
    (Zip code)Executive Offices)
 (201) 604-1800
 þ o
 o o
  o Large accelerated filer
    
    o Accelerated filer
    
    o Non-accelerated filer
    
    þ Smaller reporting company(Do not check if a smaller reporting company)
 o þ




---



##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at September 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations for the three and nine months ended
September 30, 2010 and 2009
    
    
    4Consolidated Statement of Changes in Stockholders (Deficit)
for the nine months ended September 30, 2010
    
    
    5Consolidated Statements of Cash Flows for the nine months ended
September 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    49Application of Critical Accounting Policies and Estimates
    
    
    50Servicing Portfolio
    
    
    50Results of Operations
    
    
    54Liquidity and Capital Resources
    
    
    70Borrowings
    
    
    72Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    74Item 4T. Controls and Procedures
    
    
    75PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    76Item 1A. Risk Factors
    
    
    76Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    85Item 3. Defaults Upon Senior Securities
    
    
    85Item 4. (Removed and Reserved)
    
    
    85Item 5. Other Information
    
    
    85Item 6. Exhibits
    
    
    86Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  September 30, 2010
    
    
    December 31, 2009ASSETSCash and cash equivalents
    
    $
    13,861,545
    
    
    $
    15,963,115Restricted cash
    
    
    2,554,865
    
    
    
    2,611,640Investment in REIT securities
    
    
    477,316,409
    
    
    
    477,316,409Investment in trust certificates at fair value
    
    
    2,563,187
    
    
    
    69,355,735Mortgage loans and real estate held for sale
    
    
    12,766,530
    
    
    
    345,441,865Notes receivable held for sale, net
    
    
    2,528,377
    
    
    
    3,575,323Accrued interest receivable
    
    
    31,769
    
    
    
    41,337Deferred financing costs, net
    
    
    6,948,194
    
    
    
    7,287,536Other receivables
    
    
    4,083,686
    
    
    
    3,233,676Building, furniture and equipment, net
    
    
    1,192,267
    
    
    
    1,529,418Income tax receivable
    
    
    
    
    
    
    5,592,370Other assets
    
    
    6,273,002
    
    
    
    692,730Total assets
    
    $
    530,119,831
    
    
    $
    932,641,154LIABILITIES AND STOCKHOLDERS (DEFICIT)Liabilities:Notes payable, net of debt discount of $182,272 at September 30, 2010
and $191,511 at December 31, 2009
    
    $
    1,336,938,362
    
    
    $
    1,367,199,323Financing agreements
    
    
    
    
    
    
    1,000,000Nonrecourse liability
    
    
    12,766,530
    
    
    
    345,441,865Accounts payable and accrued expenses
    
    
    3,643,804
    
    
    
    4,466,779Taxes payable
    
    
    525,509
    
    
    
    Derivative liabilities, at fair value
    
    
    7,740,761
    
    
    
    13,144,591Terminated derivative liability
    
    
    8,200,000
    
    
    
    8,200,000Total liabilities
    
    
    1,369,814,966
    
    
    
    1,739,452,558Commitments and ContingenciesStockholders (Deficit):Preferred stock, $0.001 par value; authorized 3,000,000;
issued and outstanding: none
    
    
    
    
    
    
    Common stock and additional paid-in capital, $0.01 par value,
22,000,000 authorized shares; issued and
outstanding: 
8,029,795 at September 30, 2010 and 8,012,795
at December 31, 2009
    
    
    20,560,470
    
    
    
    22,067,763Noncontrolling interest in subsidiary
    
    
    3,237,896
    
    
    
    1,657,275Accumulated other comprehensive (loss)
    
    
    (5,116,619
    )
    
    
    (12,310,764
    )Retained (deficit)
    
    
    (858,376,882
    )
    
    
    (818,225,678
    )Total stockholders (deficit)
    
    
    (839,695,135
    )
    
    
    (806,811,404
    )Total liabilities and stockholders (deficit)
    
    $
    530,119,831
    
    
    $
    932,641,154
   3




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Interest income
    
    $
    4,618,827
    
    
    $
    13,030,707
    
    
    $
    26,970,424
    
    
    $
    46,161,847Dividend income
    
    
    
    
    
    
    10,678,495
    
    
    
    21,258,599
    
    
    
    21,307,794Purchase discount earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392,127Gain on recovery from contractual loan purchase rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,550,000(Loss) on mortgage loans and real estate held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282,593,653
    )(Loss) on valuation of investments in trust certificates
and notes receivable held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,651,940
    )Fair valuation adjustments
    
    
    (3,597,322
    )
    
    
    (4,186,598
    )
    
    
    (18,269,119
    )
    
    
    (18,580,564
    )Gain on sale of real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    374,344Servicing fees and other income
    
    
    3,096,219
    
    
    
    1,460,381
    
    
    
    5,805,155
    
    
    
    5,687,547Total revenues/(losses)
    
    
    4,117,724
    
    
    
    20,982,985
    
    
    
    35,765,059
    
    
    
    (259,352,498
    )Operating Expenses:Interest expense
    
    
    17,134,597
    
    
    
    21,202,037
    
    
    
    52,943,314
    
    
    
    56,002,429Collection, general and administrative
    
    
    7,121,464
    
    
    
    8,721,929
    
    
    
    22,121,791
    
    
    
    34,320,637Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,479Amortization of deferred financing costs
    
    
    275,650
    
    
    
    43,810
    
    
    
    339,342
    
    
    
    499,155Depreciation
    
    
    108,175
    
    
    
    153,509
    
    
    
    395,976
    
    
    
    468,049Total expenses
    
    
    24,639,886
    
    
    
    30,121,285
    
    
    
    75,800,423
    
    
    
    91,459,749(Loss) before provision for income taxes
    
    
    (20,522,162
    )
    
    
    (9,138,300
    )
    
    
    (40,035,364
    )
    
    
    (350,812,247
    )Income tax (benefit)/provision
    
    
    (99,300
    )
    
    
    238,475
    
    
    
    73,000
    
    
    
    671,640Net (loss)
    
    
    (20,422,862
    )
    
    
    (9,376,775
    )
    
    
    (40,108,364
    )
    
    
    (351,483,887
    )Net (loss)/income attributed to noncontrolling interest
    
    
    (71,293
    )
    
    
    192,670
    
    
    
    42,840
    
    
    
    398,750Net (loss) attributed to common stockholders
    
    $
    (20,351,569
    )
    
    $
    (9,569,445
    )
    
    $
    (40,151,204
    )
    
    $
    (351,882,637
    )Net (loss) per common share:Basic and diluted
    
    $
    (2.54
    )
    
    $
    (1.20
    )
    
    $
    (5.01
    )
    
    $
    (43.98
    )Weighted average number of shares outstanding:Basic and diluted
    
    
    8,021,295
    
    
    
    8,006,545
    
    
    
    8,020,921
    
    
    
    8,000,295
   4




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 AccumulatedCommon Stock and
    
    
    Noncontrolling
    
    
    Other
    
    
    RetainedAdditional Paid-in Capital
    
    
    Interest
    
    
    Comprehensive
    
    
    (Deficit)/Shares
    
    
    Amount
    
    
    in Subsidiary
    
    
    Loss
    
    
    Earnings
    
    
    TotalBALANCE, JANUARY 1, 2010
    
    
    8,012,795
    
    
    $
    22,067,763
    
    
    $
    1,657,275
    
    
    $
    (12,310,764
    )
    
    $
    (818,225,678
    )
    
    $
    (806,811,404
    )Stock-based compensation
    
    
    17,000
    
    
    
    30,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,488Net income attributed to minority interest
    
    
    
    
    
    
    
    
    
    
    42,840
    
    
    
    
    
    
    
    
    
    
    
    42,840Additional 10% interest granted to
noncontrolling interest
    
    
    
    
    
    
    (1,537,781
    )
    
    
    1,537,781
    
    
    
    
    
    
    
    
    
    
    
    Amortization  unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,194,145
    
    
    
    
    
    
    
    7,194,145Net (loss) attributed to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,151,204
    )
    
    
    (40,151,204
    )BALANCE, SEPTEMBER 30, 2010
    
    
    8,029,795
    
    
    $
    20,560,470
    
    
    $
    3,237,896
    
    
    $
    (5,116,619
    )
    
    $
    (858,376,882
    )
    
    $
    (839,695,135
    )
     5




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 Nine Months Ended September 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) attributed to common shareholders
    
    $
    (40,151,204
    )
    
    $
    (351,882,637
    )Adjustments to reconcile net loss to net cash provided by operating activities:Gain on sale of real estate owned
    
    
    
    
    
    
    (374,344
    )Depreciation
    
    
    395,976
    
    
    
    468,049Amortization of deferred costs and fees on originated loans, net
    
    
    
    
    
    
    48,215Loss on mortgage loans and real estate held for sale
    
    
    
    
    
    
    282,593,653Loss on value of investment in trust certificates and notes receivable held for sale
    
    
    
    
    
    
    62,651,940Fair valuation adjustments
    
    
    18,269,119
    
    
    
    18,580,565Principal collections on mortgage loans and real estate held for sale, net
    
    
    16,915,668
    
    
    
    39,381,995Paid in kind interest
    
    
    33,429,445
    
    
    
    16,287,530Proceeds from the sales of mortgage loans and real estate held for sale
    
    
    235,791,506
    
    
    
    33,525,181Proceeds from the sales of investment in trust certificates
    
    
    44,740,727
    
    
    
    Reductions of nonrecourse liability, net
    
    
    (248,722,648
    )
    
    
    (80,355,679
    )Amortization of deferred financing costs
    
    
    339,342
    
    
    
    499,155Amortization of debt discount
    
    
    9,239
    
    
    
    13,143Stock-based compensation
    
    
    30,488
    
    
    
    196,365Purchase discount earned
    
    
    
    
    
    
    (392,127
    )Provision for loan losses
    
    
    
    
    
    
    169,479Net income attributed to noncontrolling interest
    
    
    42,840
    
    
    
    398,750Changes in operating assets and liabilities:Accrued interest receivable
    
    
    9,568
    
    
    
    1,432,088Other receivables
    
    
    (850,010
    )
    
    
    2,477,930Income tax receivable
    
    
    5,592,370
    
    
    
    485,087Taxes payable
    
    
    525,509
    
    
    
    Other assets
    
    
    (5,580,272
    )
    
    
    (257,401
    )Transfer to fixed assets
    
    
    
    
    
    
    Accounts payable and accrued expenses
    
    
    967,340
    
    
    
    (8,440,918
    )Terminated derivative liability
    
    
    
    
    
    
    8,200,000Net cash provided by operating activities
    
    
    61,755,003
    
    
    
    25,706,019CASH FLOWS FROM INVESTING ACTIVITIES:Decrease in restricted cash
    
    
    56,775
    
    
    
    26,685,066Principal collections on notes receivable
    
    
    845,122
    
    
    
    11,141,145Principal collections on loans held for investment
    
    
    
    
    
    
    5,857,079Proceeds from sale of real estate owned
    
    
    
    
    
    
    19,227,015Purchase of building, furniture and equipment
    
    
    (58,825
    )
    
    
    (6,201
    )Net cash provided by investing activities
    
    
    843,072
    
    
    
    62,904,104CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments of notes payable
    
    
    (58,699,645
    )
    
    
    (90,357,632
    )Principal payments of financing agreements
    
    
    
    
    
    
    (2,975,063
    )(Repayments)/proceeds from financing agreements
    
    
    (1,000,000
    )
    
    
    2,017,052Repayment of notes payable
    
    
    (5,000,000
    )
    
    
    (2,245,000
    )Net cash (used in) by financing activities
    
    
    (64,699,645
    )
    
    
    (93,560,643
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (2,101,570
    )
    
    
    (4,950,520
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    15,963,115
    
    
    
    21,426,777CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    13,861,545
    
    
    $
    16,476,257SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    17,754,235
    
    
    $
    32,740,196Cash payments for taxes
    
    $
    368,245
    
    
    $
    519,571NON-CASH INVESTING AND FINANCING ACTIVITY:Transfer from notes receivable and loans held for investment to REO
    
    $
    
    
    
    $
    20,566,413
    6




---



##### Table of Contents



FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  1. BUSINESS
  Overview
 Third Quarter Developments
      7




---



##### Table of Contents



September 2010 Transaction
    (1)
    
    the Bank agreed to release FCHCs pledge of 70% of the outstanding shares of
FCMC as security for the Legacy Credit Agreement, in consideration of $4 million paid
by FCMC to the Bank;
 (2)
    
    the Bank agreed to release its liens on real properties owned by FCMC that were
previously pledged to the Bank, in exchange for a $1 million note (guaranteed by TJA)
from FCMC payable on or before November 22, 2010;
 (3)
    
    the limited recourse guarantee of FCMC under the Legacy Credit Agreement was
released, cancelled and discharged by the Bank;
 (4)
    
    the Bank eliminated all cross-default provisions under the credit facility of
FCMC and FCHC (the Licensing Credit Agreement) and servicing agreement of FCMC with
the Trust (for the remaining loans and real estate owned properties that continue to be
held by the Trust and serviced by FCMC) that could have triggered a default resulting
from a default under the Legacy Credit Agreement;
 (5)
    
    the Bank extended the $6.5 million letter of credit and $1.0 million revolving
credit facilities available under the Licensing Credit Agreement, which are
collateralized by $7.5 million in cash held by FCMC, to September 30, 2011;
 (6)
    
    the Bank and the participating lenders consented to the future transfer, sale,
restructuring or spin-off of the ownership of FCMC, subject to a review and final
approval of the Bank;
 (7)
    
    FCMC entered into a deferred payment agreement to pay the Bank 10% of the
cumulative proceeds, minus $4 million, from any qualifying transactions (including
dividends or distributions) that monetize FCMCs value or significant assets prior to
March 20, 2019; and,
 (8)
    
    the Bank cancelled and terminated the obligation of FCMC, entered into on July
16, 2010, to make payments aggregating $3 million to the Bank based upon FCMCs
earnings over a three-year period (referred to as the EBITDA Payments). See - July
2010 Transaction.
  8




---



##### Table of Contents



July 2010 Transaction
      9




---



##### Table of Contents



10




---



##### Table of Contents



The Companys Business
 March 2009 Restructuring
   December 2008 Corporate Reorganization and Holding Company Structure
   11




---



##### Table of Contents



Franklin Credit Management Corporation (FCMC)
    Transfers and
Servicing
 Going Concern Uncertainty  Franklin Holding
   12




---



##### Table of Contents



Operating Losses  Franklin Holding
  Licenses to Service Loans
    13




---



##### Table of Contents



Franklins Business  Loan Servicing, Collections and Recovery Servicing
     14




---



##### Table of Contents



Loan Servicing and Collection Operations
  Loan Boarding and Administration .
  Customer Service .
 Client Relations .
 Collections .
  15




---



##### Table of Contents



Loss Mitigation .
   Real Estate .
  16




---



##### Table of Contents



Deficiency Recovery & Judgment Processing Department (Recovery) .
 Face to Face Home Solutions (Face to Face) .
 Training .
 Quality Control .
 Home Affordable Modification Program
  Bosco Servicing Agreements
   17




---



##### Table of Contents



Due Diligence Services
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    18




---



##### Table of Contents



Recent Accounting Pronouncements
 Transfers and Servicing (Topic 860)  Accounting for Transfers of Financial Assets
 Disclosures About the Credit Quality of
Financing Receivables and the Allowance for Credit Losses Receivables
  Effect of a Loan
Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset  A Consensus
of the FASB Emerging Task Force
  19




---



##### Table of Contents



Income Taxes, (Topic 740) Accounting for Certain
Tax Effects of the Health Care Reform Acts
 Derivatives and Hedging
 Consolidation (Topic 810) .
 Subsequent Events (Topic 855)  Amendments to
Certain Recognition and Disclosure Requirement
 Technical Corrections to Various Topics
  20




---



##### Table of Contents



Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements
 Equity (Topic 505): Accounting for Distributions
to Shareholders with Components of Stock and Cash
 Consolidations (Topic 810)  Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities
 3. CASH AND CASH EQUIVALENTS
  4. INVESTMENT IN PREFERRED AND COMMON STOCK (HUNTINGTON REIT SECURITIES)
    21




---



##### Table of Contents



5.
    
    INVESTMENT IN TRUST CERTIFICATES AT FAIR VALUE, MORTGAGE LOANS AND REAL ESTATE HELD FOR SALE,
AND NOTES RECEIVABLE HELD FOR SALE
    22




---



##### Table of Contents



Investment in Trust Certificates at Fair Value
  Nine Months EndedSeptember 30, 2010Balance, January 1
    
    $
    69,355,735Trust distributions
    
    
    (8,316,874
    )Transfers (out)
    
    
    (2,604,691
    )Loan sales, at fair value
    
    
    (50,051,396
    )Fair value adjustments, loan sales
    
    
    (11,477,164
    )Other fair value adjustments, net
    
    
    5,657,577Balance, September 30
    
    $
    2,563,187
  Mortgage Loans and Real Estate Held for Sale
  Nine Months EndedSeptember 30, 2010Balance, January 1
    
    $
    345,441,865Loan sales, at fair value
    
    
    (263,049,681
    )REO sales
    
    
    (12,950,234
    )Principal payments
    
    
    (16,915,671
    )Loans written off
    
    
    (23,015
    )Fair value adjustments, loan sales
    
    
    (37,826,111
    )Other fair value adjustments, net
    
    
    (1,910,623
    )Balance, September 30
    
    $
    12,766,530
  23




---



##### Table of Contents



Notes Receivable Held for Sale
  Nine Months EndedSeptember 30, 2010Balance, January 1
    
    $
    3,575,323Principal payments
    
    
    (845,122
    )Loans written off
    
    
    (13,395
    )Fair value adjustments, net
    
    
    (188,429
    )Balance, September 30
    
    $
    2,528,377
  6. FAIR VALUATION ADJUSTMENTS
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Valuation gain/(loss) on REO sales
    
    $
    838,383
    
    
    $
    (1,209,856
    )
    
    $
    5,187,403
    
    
    $
    (12,774,763
    )Valuation
(loss)/gain on mortgage loans and REO
    
    
    (5,620,819
    )
    
    
    2,590,303
    
    
    
    (39,736,734
    )
    
    
    (14,456,112
    )Valuation
gain/(loss) on nonrecourse liability
    
    
    5,620,819
    
    
    
    (2,590,303
    )
    
    
    39,736,734
    
    
    
    14,456,112Valuation (loss) on sales of trust certificates
    
    
    (3,882,666
    )
    
    
    
    
    
    
    (11,477,164
    )
    
    
    Valuation gain on trust certificates
    
    
    1,758,282
    
    
    
    3,504,020
    
    
    
    5,657,578
    
    
    
    4,237,621Valuation (loss) on notes receivable
    
    
    
    
    
    
    
    
    
    
    (188,430
    )
    
    
    Other adjustments
    
    
    (2,311,321
    )
    
    
    (6,480,762
    )
    
    
    (17,448,506
    )
    
    
    (10,043,422
    )(Loss) on valuation
    
    $
    (3,597,322
    )
    
    $
    (4,186,598
    )
    
    $
    (18,269,119
    )
    
    $
    (18,580,564
    )
  24




---



##### Table of Contents



7. DERIVATIVES
 Derivatives and Hedging
     25




---



##### Table of Contents



Notional Amount
    
    
    Term
    
    Maturity Date
    
    Fixed Rate
    
    
    Estimated Fair Value$
    275,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (5,152,399
    )70,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (698,906
    )45,000,000
    
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (1,889,456
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    $
    (7,740,761
    )
   Nine Months EndedSeptember 30, 2010Balance, January 1
    
    $
    (13,144,591
    )Cash settlements
    
    
    9,286,127Fair value adjustments
    
    
    (3,882,297
    )Balance, September 30
    
    $
    (7,740,761
    )
  26




---



##### Table of Contents



8. FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures,
 
    
    Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
 
    
    Level 2 Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable for the asset
of liability, either directly or indirectly, for substantially the full term of the
financial instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted cash
flows.
 
    
    Level 3 Inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Fair values are initially valued based upon transaction
price and are adjusted to reflect exit values as evidenced by financing and sale
transactions with third parties.
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Level 3Interest-rate swaps
    
    $
    
    
    
    $
    (7,740,761
    )
    
    $
    
    
    
    $
    Investment in trust certificates
    
    
    
    
    
    
    
    
    
    
    2,563,187
    
    
    
    Nonrecourse liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,766,530
    )Total
    
    $
    
    
    
    $
    (7,740,761
    )
    
    $
    2,563,187
    
    
    $
    (12,766,530
    )
  27




---



##### Table of Contents



Investments
    
    
    LiabilitiesBalance, January 1, 2010
    
    $
    69,355,735
    
    
    $
    (345,441,865
    )Total unrealized gains
    
    
    5,657,577
    
    
    
    30,381,841Total unrealized (losses) due to loan sales
    
    
    (11,477,164
    )
    
    
    Loan sales and other transfers in/(out)
    
    
    (52,656,087
    )
    
    
    275,999,915(Distributions)/payments
    
    
    (8,316,874
    )
    
    
    26,293,579Balance, September 30, 2010
    
    $
    2,563,187
    
    
    $
    (12,766,530
    )
   Level 1
    
    
    Level 2
    
    
    Level 3Mortgage loans and real estate held for sale
    
    $
    
    
    
    $
    
    
    
    $
    12,766,530
 9. NOTES PAYABLE AND FINANCING AGREEMENTS
     28




---



##### Table of Contents



Restructuring Agreements with Lead Lending Bank
 Forbearance Agreements with Lead Lending Bank
     29




---



##### Table of Contents



September 2010 Transaction
 September 16, 2010 Agreement
    
    
    receipt of $4 million in cash at closing from FCMC to be applied to the amounts
outstanding under the Legacy Credit Agreement;
 
    
    payment by Bosco II to the Trust of approximately $650,000 as additional payment for
the September Loan Sale, an amount equal to the servicing fees paid by the Trust to
FCMC for FCMCs servicing of the Trusts portfolio during August 2010;
 
    
    FCMC and TJA entering into an agreement (the Deferred Payment Agreement) providing
that upon each monetizing transaction, dividend or distribution (other than the sale,
restructuring or spinoff of FCMC (each a Proposed Restructuring)) prior to March 20,
2019, they will be obligated to pay the lenders under the Legacy Credit Agreement 10%
of the aggregate value (to be defined in the agreement) of the transaction, in excess
of a threshold of $4 million of consideration in respect of such transaction; and,
 
    
    the cash payment of $1 million by FCMC to release the mortgages on certain office
and residential condominium units owned by FCMC (the Real Estate) pledged to the Bank
under the Legacy Credit Agreement and the Licensing Credit Agreement (the Real Estate
Release Payment); provided, however, that if by the closing of the September Loan Sale
and the Proposed Restructuring, FCMC is unable to make such payment, FCMC will deliver
in lieu of such cash payment a $1 million note payable on November 22, 2010, guaranteed
by the TJA Note.
  30




---



##### Table of Contents




    
    the Trust will consent under the Servicing Agreement with FCMC to the change of
control of FCMC resulting from the Proposed Restructuring and agree to eliminate any
cross default provisions in the Servicing Agreement relating to defaults under the
Legacy Credit Agreement;
 
    
    the Bank and the requisite lenders will consent under the Legacy Credit Agreement to
the change of control of FCMC resulting from the Proposed Restructuring and agree to
waive any related defaults and amend the definition of Collateral and certain
FCMC-related restrictive covenants; and,
 
    
    FCMC and the Bank will amend the Licensing Credit Agreement (as defined in FCHCs
Annual Report on Form 10-K for the year ended December 31, 2009) to permit a change of
control of FCMC resulting from the Proposed Restructuring and agree to eliminate any
cross default provisions relating to defaults under the Legacy Credit Agreement and
extend the letter of credit facility and the revolving facility under the Licensing
Credit Agreement to September 30, 2011.
   September 22, 2010 Implementing Agreements
  Deferred Payment Agreement.
   31




---



##### Table of Contents




    
    sale of all or a portion of the assets (an Asset Sale) or the capital stock (a
Stock Sale) of FCMC, whether any such sale is effected by FCMC, TJA, its then-current
owners if such owners sell 30% or more of the fully diluted outstanding equity
securities of FCMC, a third party or any combination of any of the foregoing;
 
    
    any exchange or tender offer, merger, consolidation or other business combination
involving FCMC;
 
    
    any recapitalization, reorganization, restructuring or any other similar transaction
including, without limitation, negotiated repurchases of FCMCs securities, an issuer
tender offer, a dividend or distribution, or a spin-off or split-off involving FCMC;
and,
 
    
    any liquidation or winding-down of FCMC, whether by FCMC, its then-current owners, a
third party or any combination of any of the foregoing.
  
    
    the issuance of shares under FCMCs equity compensation plans to the extent that
those issuances do not exceed 7% of the fully diluted outstanding securities of FCMC
during the term of the Deferred Payment Agreement; and,
 
    
    the sale, restructuring or spin off, which is subject to the Banks prior approval,
by the Company of its ownership interests in FCMC.
  
    
    in the case of a Stock Sale, the total consideration paid or payable to equity
holders, or FCMC in the case of a new issuance. If a Stock Sale involves the
acquisition of a majority of the fully diluted outstanding equity shares of FCMC, the
total consideration will also include additional amounts reflecting FCMCs indebtedness
for borrowed money, net pension liabilities, to the extent they are underfunded and
deferred compensation liabilities, and be grossed up to the amount that would have been
paid if all of the outstanding equity securities were acquired for the same per share
consideration as that ascribed to the shares actually acquired; and,
 
    
    in the case of an Asset Sale, the total consideration paid or payable for the
assets. If an Asset Sale involves the sale of a material portion of the assets or
business of FCMC, the total consideration will also include any assumed debt (including
capitalized leases and repayment obligations under letters of credit), pension
liabilities assumed, to the extent they are underfunded, and deferred compensation
liabilities assumed, the net book value of net current assets retained by FCMC and the
fair market value of any other retained assets.
  32




---



##### Table of Contents




    
    consideration paid or payable to FCMC and its equity holders in connection with the
qualifying transaction for covenants not to compete and management or consulting
arrangements (excluding reasonable salaries or wages payable under bona fide
arrangements for actual services);
    
    dividends or distributions declared, and payments by FCMC to repurchase outstanding
equity securities, in either event, after the date of the Deferred Payment Agreement;
and,
 
    
    in any qualifying transaction, amounts payable pursuant to any earn out, royalty or
similar arrangement will be included in the aggregate value of the transaction. If
such amounts are contingent, the deferred payment in respect of the contingent amounts
will be paid at the time the contingency is realized, provided that amounts payable
pursuant to notes or an escrow arrangement will not be treated as contingent.
  Amendment to Legacy Credit Agreement.
  Amendment to Licensing Credit Agreement.
 Amendment to Servicing Agreement with the Bank.
 EBIDTA Payment.
  33




---



##### Table of Contents



Servicing Agreement with Bosco II.
 July 2010 Transaction
    Letter Agreement with the Bank.
 
    
    FCMC made a $1 million payment to the Bank as reimbursement for certain expenses of
the Bank in connection with the July Loan Sale;
 
    
    FCMC released all claims under the Legacy Servicing Agreement as of the loan sale
date (other than those for unpaid servicing advances for services incurred prior to
June 30, 2010) with respect to the loans sold in the July Loan Sale;
 
    
    FCMC refunded to the Trust an estimated $400,000 for servicing fees paid in advance
to FCMC under the Legacy Servicing Agreement in respect of July 2010 to the extent
attributable to the loans sold in the July Loan Sale;
 
    
    the Legacy Servicing Agreement was terminated as to the loans sold, except with
respect to FCMCs obligations to assist in curing documentary issues or deficiencies
relating to the loans sold; and,
    
    FCMC and the Trust entered into an amended and restated servicing agreement (the
New Trust Servicing Agreement or Servicing Agreement) on July 30, 2010 and
effective August 1, 2010, relating to the servicing of the loans and real estate
properties previously serviced under the Legacy Servicing Agreement, other than those
sold in the July Loan Sale (see below).
  34




---



##### Table of Contents



Amendment No. 2 to the Licensing Credit Agreement with the Bank.
 
    
    FCMC used $1 million in unpledged cash to repay the amount outstanding under its
revolving line of credit with the Bank; and,
 
    
    available credit under the revolving loan facility was reduced from $2 million to $1
million and the cash collateral, which was required to secure the revolving loan and
letter of credit facilities, was reduced from $8.5 million to $7.5 million, with the
released collateral applied as a voluntary payment against the debt outstanding of
certain subsidiaries of the Company under the Legacy Credit Agreement.
 Loan Sale Servicing Agreement with Purchaser.
   Potential Restructuring.
 
    
    the Bank would use its reasonable efforts to assist Franklin Holding and FCMC in
connection with such Potential Restructuring in obtaining the approval of the required
lenders for the Potential Restructuring and consenting to any change of control in
connection with the Potential Restructuring to the extent required under the Legacy
Credit Agreement, and FCMC
or Franklin Holding would reimburse and hold the Bank and the required lenders harmless
from any reasonable expense incurred by them in connection with any such Potential
Restructuring;
  35




---



##### Table of Contents




    
    FCMC would make semi-annual payments to the Bank under the Legacy Credit Agreement
(the EBITDA Payment) equal to (i) 50% of FCMCs EBITDA, in accordance with GAAP, for
each period for the first 18 months from the July Loan Sale Closing Date, and (ii) 70%
of FCMCs GAAP EBITDA for each period thereafter, up to a maximum aggregate of $3
million. The EBITDA Payment obligation, which was never triggered, was terminated and
cancelled pursuant to the September 2010 Transaction;
 
    
    Thomas J. Axons existing personal guaranty to the Bank would be extended to the
EBITDA Payment pursuant to an amendment to the guarantee, which will also provide that
to the extent that the EBITDA Payment in respect of any period is less than $500,000,
Mr. Axon will pay such shortfall. Mr. Axons obligations pursuant to the guaranty
would be secured and continue to be secured by the collateral he had pledged to the
Bank on March 31, 2009. Although the EBITDA Payment obligation, which was never
triggered, was terminated and cancelled pursuant to the September 2010 Transaction, Mr.
Axons collateral has been pledged to the Bank to guarantee the TJA Note entered into
on September 22, 2010; and,
 
    
    any payments by FCMC or Mr. Axon in respect of the EBITDA Payment would go to reduce
the obligation of the other in respect of the obligations to make such payment, or the
guaranty in respect of such payment, as the case may be; and, any payments in respect
of the EBITDA Payments, and application of payments to the Bank in respect of
distributions by FCMC to its stockholders, would each serve as a credit against the
other, which could have the effect of reducing the impact of the $3 million maximum
amount of the EBITDA Payments otherwise payable as described above. These obligations,
which were never triggered, were terminated and cancelled pursuant to the September
2010 Transaction.
 New Trust Servicing Agreement.
   36




---



##### Table of Contents



March 2009 Restructuring
       37




---



##### Table of Contents



Restructuring Agreements.
 1.
    
    Transferred substantially the entire Portfolio in exchange for the REIT Securities.
  (a)
    
    an undivided 100% interest of the Banks portion of consumer mortgage loans
(the Bank Consumer Loan Certificate);
 (b)
    
    an undivided 100% interest in the Banks portion of consumer REO assets (the
Bank Consumer REO Certificate, and together with the Bank Consumer Loan Certificate,
the Bank Trust Certificates);
 (c)
    
    an undivided 100% interest in the portion of consumer mortgage loan assets
allocated to the M&I Marshall & Ilsley Bank (M&I) and BOS (USA) Inc. (BOS) (M&I and
BOS collectively, the Participants) represented by two certificates (the
Participants Consumer Loan Certificates); and,
 (d)
    
    an undivided 100% interest in Participants portion of the consumer REO assets
represented by two certificates (the Participants Consumer REO Certificates, and
together with the Participants Consumer Loan Certificate, the Participants Trust
Certificates).
    38




---



##### Table of Contents



2.
    
    Amended and restated substantially all of its outstanding debt.
    39




---



##### Table of Contents



Terms of the Restructured Indebtedness under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amountat March 31, 2009 -
    
    
    at September 30, 2010 -
    
    
    Applicable Interest
    
    
    Required MonthlyFranklin
    
    
    Franklin
    
    
    Margin Over LIBOR
    
    
    PrincipalAsset/Tribeca
    
    
    Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    714,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    
    427,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    
    157,000,000
    
    
    
    N/A
    (1)
    
    NoneUnrestructured Debt
    
    $
    41,000,000
    
    
    $
    39,000,000
    
    
    
    (2)
    
    
    None
 
 (1)
    
    The applicable interest rate is fixed at 15% per annum. Interest will be paid in kind
during the term of the Restructuring.(2)
    
    Interest margin over FHLB 30-day LIBOR advance rate plus 2.60%-2.75%.     40




---



##### Table of Contents



41




---



##### Table of Contents



3.
    
    Entered into an amended and restated credit agreement to fund FCMCs licensing obligations
and working capital.
        42




---



##### Table of Contents



4.
    
    Entered into a servicing agreement with the Trust.
      43




---



##### Table of Contents



10. NONCONTROLLING INTEREST
   Nine Months EndedSeptember 30, 2010Balance, January 1, 2010
    
    $
    1,657,275Net income attributed to noncontrolling interest
    
    
    42,840Additional 10% ownership granted
    
    
    1,537,781Balance, September 30, 2010
    
    $
    3,237,896
  11. CERTAIN CONCENTRATIONS
 Third Party Servicing Agreements
 Financing
  44




---



##### Table of Contents



12. RELATED PARTY TRANSACTIONS
 Restructuring
 Bosco I Servicing Agreement
     45




---



##### Table of Contents



46




---



##### Table of Contents



Bosco II Servicing Agreement
   Other Significant Related Party
 Transactions with the Companys Chairman
    47




---



##### Table of Contents



48




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Safe Harbor Statements.
  49




---



##### Table of Contents



Application of Critical Accounting Policies and Estimates
 Transfers and Servicing
 
 Servicing Portfolio
     50




---



##### Table of Contents



September 30, 2010Number
    
    
    Unpaid
    
    
    Percentage of TotalProperty Types
    
    of Loans
    
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    
    18,255
    
    
    $
    1,081,190,520
    
    
    
    65.86
    %Condos, co-ops, PUD dwellings
    
    
    2,963
    
    
    
    173,778,429
    
    
    
    10.58
    %Manufactured and mobile homes
    
    
    441
    
    
    
    11,295,406
    
    
    
    0.69
    %Secured, property type unknown(1)
    
    
    1,253
    
    
    
    17,918,969
    
    
    
    1.09
    %Commercial
    
    
    41
    
    
    
    2,801,815
    
    
    
    0.17
    %Unsecured loans(2)
    
    
    9,914
    
    
    
    354,738,335
    
    
    
    21.61
    %Total
    
    
    32,867
    
    
    $
    1,641,723,474
    
    
    
    100.00
    %
 
 (1)
    
    The loans included in this category are principally small balance (less than $10,000)
second-lien loans acquired, and are collateralized by residential real estate.(2)
    
    The loans included in this category are principally second-lien loans where the Company
is aware that residential real estate collateral has been foreclosed by the first-lien
holder.  51




---



##### Table of Contents



September 30, 2010Contractual DelinquencyDays Past Due
    
    Amount
    
    
    %Performing  Current
    
    0 - 30 days
    
    $
    204,373,645
    
    
    
    12.45
    %Delinquent
    
    31 - 60 days
    
    
    13,774,089
    
    
    
    0.84
    %61 - 90 days
    
    
    3,013,303
    
    
    
    0.18
    %90+ days
    
    
    777,353,975
    
    
    
    47.35
    %Modified Loans
    
    0 - 30 days
    
    
    153,976,723
    
    
    
    9.38
    %Delinquent
    
    31 - 60 days
    
    
    20,942,690
    
    
    
    1.28
    %61 - 90 days
    
    
    3,786,376
    
    
    
    0.23
    %90+ days
    
    
    50,327,348
    
    
    
    3.06
    %Bankruptcy
    
    0 - 30 days
    
    
    27,013,520
    
    
    
    1.64
    %Delinquent
    
    31 - 60 days
    
    
    4,729,649
    
    
    
    0.29
    %61 - 90 days
    
    
    1,044,562
    
    
    
    0.06
    %90+ days
    
    
    175,446,548
    
    
    
    10.69
    %Foreclosure
    
    0 - 30 days
    
    
    1,177,537
    
    
    
    0.07
    %Delinquent
    
    31 - 60 days
    
    
    289,377
    
    
    
    0.02
    %61 - 90 days
    
    
    280,707
    
    
    
    0.02
    %90+ days
    
    
    204,193,425
    
    
    
    12.44
    %Total
    
    $
    1,641,723,474
    
    
    
    100.00
    %All current loans
    
    0 - 30 days
    
    $
    386,541,425
    
    
    
    23.54
    %
   52




---



##### Table of Contents



September 30, 2010Contractual DelinquencyDays Past Due
    
    Number of Loans
    
    
    %Performing  Current
    
    0 - 30 days
    
    
    5,212
    
    
    
    15.86
    %Delinquent
    
    31 - 60 days
    
    
    381
    
    
    
    1.16
    %61 - 90 days
    
    
    65
    
    
    
    0.19
    %90+ days
    
    
    18,957
    
    
    
    57.68
    %Modified Loans
    
    0 - 30 days
    
    
    1,990
    
    
    
    6.05
    %Delinquent
    
    31 - 60 days
    
    
    268
    
    
    
    0.82
    %61 - 90 days
    
    
    65
    
    
    
    0.20
    %90+ days
    
    
    847
    
    
    
    2.58
    %Bankruptcy
    
    0 - 30 days
    
    
    657
    
    
    
    2.00
    %Delinquent
    
    31 - 60 days
    
    
    119
    
    
    
    0.36
    %61 - 90 days
    
    
    39
    
    
    
    0.12
    %90+ days
    
    
    3,293
    
    
    
    10.02
    %Foreclosure
    
    0 - 30 days
    
    
    9
    
    
    
    0.03
    %Delinquent
    
    31 - 60 days
    
    
    3
    
    
    
    0.01
    %61 - 90 days
    
    
    4
    
    
    
    0.01
    %90+ days
    
    
    958
    
    
    
    2.91
    %Total
    
    
    32,867
    
    
    
    100.00
    %All current loans
    
    0 - 30 days
    
    
    7,868
    
    
    
    23.94
    %
   September 30, 2010Number
    
    
    Unpaid
    
    
    Percentage of TotalLien Position
    
    of Loans
    
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    
    5,389
    
    
    $
    518,322,805
    
    
    
    31.57
    %2nd Liens
    
    
    27,478
    
    
    
    1,123,400,669
    
    
    
    68.43
    %Total
    
    
    32,867
    
    
    $
    1,641,723,474
    
    
    
    100.00
    %
  53




---



##### Table of Contents



September 30, 2010Number
    
    
    Unpaid
    
    
    Percentage of TotalLocation
    
    of Loans
    
    
    Principal Balance
    
    
    Principal BalanceCalifornia
    
    
    5,368
    
    
    $
    445,728,760
    
    
    
    27.15
    %Florida
    
    
    2,649
    
    
    
    132,643,895
    
    
    
    8.08
    %New Jersey
    
    
    845
    
    
    
    109,388,448
    
    
    
    6.66
    %New York
    
    
    1,231
    
    
    
    103,420,220
    
    
    
    6.30
    %Texas
    
    
    3,282
    
    
    
    87,307,522
    
    
    
    5.32
    %Pennsylvania
    
    
    1,050
    
    
    
    54,348,268
    
    
    
    3.31
    %Ohio
    
    
    1,681
    
    
    
    50,929,825
    
    
    
    3.10
    %Illinois
    
    
    1,239
    
    
    
    49,574,068
    
    
    
    3.02
    %Georgia
    
    
    1,234
    
    
    
    47,666,508
    
    
    
    2.91
    %Michigan
    
    
    1,637
    
    
    
    45,514,555
    
    
    
    2.77
    %All Others
    
    
    12,651
    
    
    
    515,201,405
    
    
    
    31.38
    %Total
    
    
    32,867
    
    
    $
    1,641,723,474
    
    
    
    100.00
    %
 Real Estate Assets Serviced for Other Entities
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2010Number of Assets
    
    
    Amount
    
    
    Number of Assets
    
    
    AmountReal estate assets at September 30, 2010
    
    
    238
    
    
    $
    41,169,487
    
    
    
    238
    
    
    $
    41,169,487Real estate assets sold
    
    
    67
    
    
    $
    13,802,739
    
    
    
    212
    
    
    $
    38,433,034
 
 Results of Operations  Franklin Credit Management Corporation (FCMC)
    54




---



##### Table of Contents



55




---



##### Table of Contents



(a)
    
    the Bank agreed to release FCHCs pledge of 70% of the outstanding shares of
FCMC as security for the Legacy Credit Agreement, in consideration of $4 million paid
by FCMC to the Bank;
 (b)
    
    the Bank agreed to release its liens on real properties owned by FCMC that were
previously pledged to the Bank, in exchange for a $1 million note (guaranteed by TJA)
from FCMC payable on or before November 22, 2010;
  56




---



##### Table of Contents



(c)
    
    the Bank released, cancelled and discharged the limited recourse guarantee of
FCMC under the Legacy Credit Agreement;
 (d)
    
    the Bank eliminated all cross-default provisions to the Licensing Credit
Agreement and servicing agreement of FCMC with the Trust (for the remaining loans that
continue to be held by the Trust) that could have triggered a default resulting from a
default under the Legacy Credit Agreement;
 (e)
    
    the Bank extended the $6.5 million letter of credit and $1.0 million revolving
credit facilities available under the Licensing Credit Agreement, which is
collateralized by $7.5 million in cash held by FCMC, to September 30, 2011;
 (f)
    
    the Bank and the participating lenders consented to the future transfer, sale,
restructuring or spin-off of the ownership of FCMC, subject to a review and final
approval of the Bank;
 (g)
    
    FCMC entered into a Deferred Payment Agreement (guaranteed and collateralized
by TJA) to pay the Bank 10% of the cumulative proceeds, minus $4 million, from any
qualifying transactions (including dividends or distributions) that monetize FCMCs
value or significant assets prior to March 20, 2019; and,
 (h)
    
    the Bank cancelled and terminated the obligation of FCMC, entered into on July
16, 2010, to make payments aggregating $3 million to the Bank based upon FCMCs EBITDA
(earnings before interest, taxes, depreciation and amortization) over a three-year
period.
    57




---



##### Table of Contents



Three Months Ended
    
    
    Three Months EndedSTATEMENT OF INCOME
    
    September 30, 2010
    
    
    September 30, 2009REVENUES:Servicing fees and other income
    
    $
    4,300,578
    
    
    $
    7,379,394Interest income
    
    
    7,899
    
    
    
    18,124Total revenues
    
    
    4,308,477
    
    
    
    7,397,518OPERATING EXPENSES:Interest expense
    
    
    5,383
    
    
    
    25,313Bank fee
    
    
    1,000,000
    
    
    
    Collection, general and administrative
    
    
    4,290,518
    
    
    
    5,054,678Depreciation
    
    
    107,019
    
    
    
    152,353Total operating expenses
    
    
    5,402,920
    
    
    
    5,232,344INCOME BEFORE PROVISION FOR INCOME TAXES
    
    $
    (1,094,443
    )
    
    $
    2,165,174Provision for income taxes
    
    
    (438,550
    )
    
    
    238,475NET INCOME
    
    $
    (655,893
    )
    
    $
    1,926,699
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009REVENUES:Servicing fees and other income
    
    $
    15,680,835
    
    
    $
    22,466,722Interest income
    
    
    25,680
    
    
    
    90,709Total revenues
    
    
    15,706,515
    
    
    
    22,557,431OPERATING EXPENSES:Interest expense
    
    
    49,653
    
    
    
    55,097Bank fee
    
    
    1,000,000
    
    
    
    Collection, general and administrative
    
    
    13,455,532
    
    
    
    15,930,778Depreciation
    
    
    392,893
    
    
    
    465,736Total operating expenses
    
    
    14,898,078
    
    
    
    16,451,611INCOME BEFORE PROVISION FOR INCOME TAXES
    
    $
    808,437
    
    
    $
    6,105,820Provision for income taxes
    
    
    323,000
    
    
    
    2,442,000NET INCOME
    
    $
    485,437
    
    
    $
    3,663,820
  58




---



##### Table of Contents



BALANCE SHEET
    
    At September 30, 2010
    
    
    At December 31, 2009ASSETS:Cash and cash equivalents
    
    $
    12,780,762
    
    
    $
    15,116,880Restricted cash
    
    
    10,352,805
    
    
    
    4,770,867Receivables, fixed and other assets
    
    
    6,128,655
    
    
    
    6,436,434Total assets
    
    $
    29,262,222
    
    
    $
    26,324,181LIABILITIES:Borrowed funds
    
    $
    
    
    
    $
    1,000,000Note payable
    
    
    1,000,000
    
    
    
    Servicing liabilities
    
    
    10,352,805
    
    
    
    4,770,867Other liabilities
    
    
    1,719,936
    
    
    
    1,675,372Total liabilities
    
    $
    13,072,741
    
    
    $
    7,446,239STOCKHOLDERS EQUITY
    
    $
    16,189,481
    
    
    $
    18,877,942Total liabilities and stockholders equity
    
    $
    29,262,222
    
    
    $
    26,324,181SERVICING PORTFOLIO:Number of loans serviced
    
    
    32,900
    
    
    
    36,700Unpaid principal balance serviced
    
    $
    1.64 billion
    
    
    $
    1.80 billion
   Results of Operations  Franklin Credit Holding Corporation
    59




---



##### Table of Contents



60




---



##### Table of Contents



Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
 Overview.
    61




---



##### Table of Contents



Revenues.
     62




---



##### Table of Contents



Operating Expenses.
    63




---



##### Table of Contents



64




---



##### Table of Contents



Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 Overview.
   65




---



##### Table of Contents



Revenues.
        66




---



##### Table of Contents



Operating Expenses.
  67




---



##### Table of Contents



68




---



##### Table of Contents



69




---



##### Table of Contents



Liquidity and Capital Resources
 General
     Short-term Investments.
  70




---



##### Table of Contents



Cash Flow from Operating, Investing and Financing Activities
         71




---



##### Table of Contents



Borrowings
       72




---



##### Table of Contents



Interest Rate Swaps
       Notional Amount
    
    
    Term
    
    Maturity Date
    
    Fixed Rate
    
    
    Estimated Fair Value*$
    275,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.47
    %
    
    $
    (5,152,399
    )70,000,000
    
    
    3 years
    
    March 5, 2011
    
    
    3.11
    %
    
    
    (698,906
    )45,000,000
    
    
    4 years
    
    March 5, 2012
    
    
    3.43
    %
    
    
    (1,889,456
    )$
    390,000,000
    
    
    
    
    
    
    
    
    
    
    $
    (7,740,761
    )
 
 *
    
    Determined in accordance with Topic 820, Fair Value Measurements and Disclosures,
based upon a Level 2 valuation methodology.  73




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
  Interest Rate Risk
     74




---



##### Table of Contents



Real Estate Risk
  
 ITEM 4T.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
   75




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
    Risks Related to Our Business
 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 Company may not be able to continue as a going concern.
   76




---



##### Table of Contents



Our credit facilities with the Bank require us to observe certain covenants, and our
failure to satisfy such covenants could render us insolvent.
  If our lenders fail to renew our available credit under the Licensing Credit Agreement for
additional terms, our revolving line of credit and letter of credit facilities will expire on
September 30, 2011.
  If our lenders fail to renew our loans under the Legacy Credit Agreement for additional terms
or provide us with refinancing opportunities, our legacy indebtedness will become due and payable
in 2012.
   77




---



##### Table of Contents



If our lenders fail to extend the Forbearance Agreement covering the Unrestructured Debt, the
Unrestructured Debt will become due and payable.
  Our ability to fund operating expenses depends on the cash flow received from servicing loans
for third parties.
  Our business is sensitive to, and can be materially affected by, changes in interest rates.
   We may not be successful in entering into or implementing our planned business of providing
servicing and other mortgage related services for other entities on a fee-paying basis.
   78




---



##### Table of Contents



If we do not obtain and maintain the appropriate state licenses, we will not be allowed to
service mortgage loans in some states, which would adversely affect our operations.
     79




---



##### Table of Contents



A significant amount of the mortgage loans that we originated prior to the Restructuring and
continue to service on behalf of third parties 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.
   80




---



##### Table of Contents



We may not be adequately protected against the risks inherent in servicing subprime
residential mortgage loans.
  A number of the second-lien mortgage loans that we service are subordinated to ARM or
interest-only mortgages that may be subject to monthly payment increases, which may result in
delinquencies and a decrease in servicing and collection revenues.
  We are subject to losses from the mortgage loans we acquired and originated prior to the
Restructuring due to fraudulent and negligent acts on the part of loan applicants, mortgage
brokers, sellers of loans we acquired, vendors and our employees.
   81




---



##### Table of Contents



Legal proceedings and regulatory investigations could be brought or initiated which could
adversely affect our financial results.
  Given the nature of the industry in which we operate, our businesses is, and in the future may
become, involved in various legal proceedings the ultimate resolution of which is inherently
unpredictable and could have a material adverse effect on our business, financial position, results
of operations or cash flows.
  We are exposed to counter-party risk and there can be no assurances that we will manage or
mitigate this risk effectively.
  The success and growth of our servicing business will depend on our ability to adapt to and
implement technological changes, and any failure to do so could result in a material adverse effect
on our business.
   82




---



##### Table of Contents



If we do not manage the changes in our businesses effectively, our financial performance could
be harmed.
  The inability to attract and retain qualified employees could significantly harm our business.
  An interruption in or breach of our information systems may result in lost business and
increased expenses.
  We are exposed to the risk of environmental liabilities with respect to properties to which we
take title.
   83




---



##### Table of Contents



A loss of our Chairman and President may adversely affect our operations.
  The clients for whom we service loans may transfer our rights as servicer and we may be unable
to add business or take appropriate cost saving measures to replace reduced revenues.
   Risks Related to Our Financial Statements
 
    
    Our financial condition and financial results can be materially affected by Federal
Reserves Board policies and the capital markets.
 
    
    We may become subject to liability and incur increased expenditures as a result of the
restatement in 2006 of our 2003 and 2004 financial statements.
 
    
    We may become subject to liability and incur increased expenditures as a result of our
having reassessed our allowance for loan losses and our transfer of substantially all our
mortgage portfolio related assets to the Bank.
 
    
    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 service 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.
  84




---



##### Table of Contents




    
    We may be subject to fines or other penalties based upon the conduct of our independent
brokers.
 
    
    We are subject to reputation risks from negative publicity concerning the subprime mortgage
industry.
 
    
    We are subject to significant legal and reputation risks and expenses under federal and
state laws concerning privacy, use and security of customer information.
 
    
    If many of the borrowers of the loans we service become subject to the Servicemembers Civil
Relief Act of 2003, our cash flows and service fee income may be adversely affected.
 
    
    Legislative action to provide mortgage relief may negatively impact our business.
 Risks Related to Our Securities
 
    
    Thomas J. Axon effectively controls our company, substantially reducing the influence of
our other stockholders.
 
    
    Our common stock is quoted only on the OTC Bulletin Board, which may adversely impact the
price and liquidity of the common stock, and our ability to raise capital.
 
    
    Our organizational documents, Delaware law and our Restructuring Agreements may make it
harder for us to be acquired without the consent and cooperation of our board of directors,
management and our Bank.
 
    
    Our quarterly operating results may fluctuate and cause our stock price to decline.
 
    
    Compliance with the rules of the market in which our common stock trades, and proposed and
recently enacted changes in securities laws and regulations are likely to increase our costs.
 
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
   85




---



##### Table of Contents



ITEM 6.
    
    EXHIBITS
 ExhibitNumber3.1
    
    
    First Amended and Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the Commission) on
December 24, 2008.3.2
    
    
    Amended and Restated By-laws. Incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K,
filed with the Commission on December 24, 2008.10.5
    
    
    Letter Agreement, dated July 16, 2010, by and among The
Huntington National Bank, Franklin Mortgage Asset Trust
2009-A, the Registrant, Franklin Credit Management
Corporation and, solely for the purposes of paragraph 5
thereof, Thomas J. Axon. Incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K, filed with the Commission on July 22, 2010.10.6
    
    
    Amendment No. 2 to the Amended and Restated Credit
Agreement (Licensing), dated as of July 20, 2010, by and
among Franklin Credit Management Corporation, the
Registrant, the Financial Institutions Party thereto as
Lenders, and The Huntington National Bank (as
Administrative Agent and Issuing Bank) and an affiliate of
the Bank, Huntington Finance, LLC as Lender and Risk
Participant. Incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K, filed with the
Commission on July 22, 2010.10.7
    
    
    Loan Servicing Agreement, entered into on July 20, 2010 but
dated and effective July 1, 2010, by and among Vantium
Capital Markets, L.P., Vantium REO Capital Markets, L.P.
and FCMC (portions of this exhibit have been omitted and
separately filed with the Commission with a request for
confidential treatment). Incorporated by reference to
Exhibit 10.3 to the Registrants Amended Current Report on
Form 8-K/A, filed with the Commission on September 20,
2010.10.8
    
    
    Amended and Restated Servicing Agreement, entered into on
August 1, 2010, by and between Franklin Mortgage Asset
Trust 2009-A, as Owner, and Franklin Credit Management
Corporation, as Servicer (portions of this exhibit have
been omitted and separately filed with the Commission with
a request for confidential treatment). Incorporated by
reference to Exhibit 10.1 to the Registrants Amended
Current Report on Form 8-K/A, filed with the Commission on
September 20, 2010.10.9
    
    
    Letter Agreement, dated September 16, 2010, by and among
The Huntington National Bank, Franklin Mortgage Asset Trust
2009-A, the Registrant, Franklin Credit Management
Corporation, Bosco Credit II, LLC and Thomas J. Axon.
Incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.10.10
    
    
    Restructure Agreement, dated September 22, 2010, by and
among The Huntington National Bank, Franklin Mortgage Asset
Trust 2009-A, the Registrant, Franklin Credit Management
Corporation, Bosco Credit II, LLC and Thomas J. Axon.
Incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.
  86




---



##### Table of Contents



ExhibitNumber10.11
    
    
    First Amendment to Limited Recourse Guaranty, dated
September 22, 2010, by and between the Registrant and The
Huntington National Bank, as Administrative Agent.
Incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.10.12
    
    
    Letter from The Huntington National Bank to the Registrant
and Franklin Credit Management Corporation regarding the
EBITDA Payment. Incorporated by reference to Exhibit 10.4
to the Registrants Current Report on Form 8-K, filed with
the Commission on September 23, 2010.10.13
    
    
    Promissory Note of Franklin Credit Management Corporation,
dated September 22, 2010. Incorporated by reference to
Exhibit 10.5 to the Registrants Current Report on
Form 8-K, filed with the Commission on September 23, 2010.10.14
    
    
    Amendment No.2 to Amended and Restated Credit Agreement by
and among Franklin Credit Asset Corporation, Tribeca
Lending Corp., Franklin Asset, LLC and the Other Borrowers
Party thereto as Borrowers, the Financial Institutions
Party thereto as Lenders, and The Huntington National Bank,
as Administrative Agent, dated September 22, 2010.
Incorporated by reference to Exhibit 10.6 to the
Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.10.15
    
    
    Amendment No. 3 to the Amended and Restated Credit
Agreement (Licensing), dated September 22, 2010, by and
among Franklin Credit Management Corporation, the
Registrant, the Financial Institutions Party thereto as
Lenders, and The Huntington National Bank, as
Administrative Agent. Incorporated by reference to
Exhibit 10.7 to the Registrants Current Report on
Form 8-K, filed with the Commission on September 23, 2010.10.16
    
    
    Release, Cancellation and Discharge of Limited Recourse
Guaranty of Franklin Credit Management Corporation dated
September 22, 2010. Incorporated by reference to
Exhibit 10.8 to the Registrants Current Report on
Form 8-K, filed with the Commission on September 23, 2010.10.17
    
    
    First Amendment to Amended and Restated Pledge Agreement,
dated September 22, 2010, by and between the Registrant and
The Huntington National Bank, as Administrative Agent.
Incorporated by reference to Exhibit 10.9 to the
Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.10.18
    
    
    Amendment Number One to Servicing Agreement, entered into
on September 22, 2010, by and between Franklin Mortgage
Asset Trust 2009-A and Franklin Credit Management
Corporation. Incorporated by reference to Exhibit 10.10 to
the Registrants Current Report on Form 8-K, filed with the
Commission on September 23, 2010.10.19
    
    
    Loan Servicing Agreement, entered into on September 22,
2010, effective September 1, 2010 by and between Franklin
Credit Management Corporation and Bosco Credit II, LLC
(portions of this exhibit have been omitted and separately
filed with the Commission with a request for confidential
treatment). Incorporated by reference to Exhibit 10.11 to
the Registrants Amended Current Report on Form 8-K/A,
filed with the Commission on September 23, 2010.10.20
    
    
    Deferred Payment Agreement, dated September 22, 2010, by
and among The Huntington National Bank, as Administrative
Agent under the Legacy Credit Agreement, Franklin Credit
Management Corporation and Thomas J. Axon. Incorporated by
reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed with the Commission on October 1,
2010.
  87




---



##### Table of Contents



ExhibitNumber31.1
    *
    
    Rule 13a-14(a) Certification of Chief Executive Officer of
the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    *
    
    Rule 13a-14(a) Certification of Chief Financial Officer of
the Registrant in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    *
    
    Section 1350 Certification of Chief Executive Officer of
the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    *
    
    Section 1350 Certification of Chief Financial Officer of
the Registrant in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.  88




---



##### Table of Contents



SIGNATURES
  FRANKLIN CREDIT HOLDING CORPORATIONNovember 15, 2010By:
    /s/                   THOMAS J. AXONThomas J. AxonPresident
(Principal Executive Officer)  By:
    /s/ PAUL D. COLASONOPaul D. ColasonoExecutive Vice President and Chief Financial Officer

(Principal Financial Officer)  89