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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 March 31, 2011
 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




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations for the three months ended
March 31, 2011 and March 31, 2010
    
    
    4Consolidated Statement of Changes in Stockholders (Deficit)
for the three months ended March 31, 2011
    
    
    5Consolidated Statements of Cash Flows for the three months ended
March 31, 2011 and March 31, 2010
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    38Application of Critical Accounting Policies and Estimates
    
    
    40Serviced for Others Portfolio
    
    
    40Results of Operations
    
    
    44Liquidity and Capital Resources
    
    
    53Borrowings
    
    
    55Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    57Item 4. Controls and Procedures
    
    
    58PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    59Item 1A. Risk Factors
    
    
    59Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    62Item 3. Defaults Upon Senior Securities
    
    
    63Item 4. (Removed and Reserved)
    
    
    63Item 5. Other Information
    
    
    63Item 6. Exhibits
    
    
    65Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  March 31, 2011
    
    
    December 31, 2010ASSETSCash and cash equivalents
    
    $
    13,127,040
    
    
    $
    12,640,619Restricted cash
    
    
    2,459,363
    
    
    
    2,407,194Investment in REIT securities
    
    
    477,316,409
    
    
    
    477,316,409Investment in trust certificates at fair value
    
    
    997,667
    
    
    
    1,505,978Mortgage loans and real estate held for sale
    
    
    4,969,105
    
    
    
    7,500,863Notes receivable held for sale, net
    
    
    2,773,773
    
    
    
    2,857,312Accrued interest receivable
    
    
    33,099
    
    
    
    28,245Deferred financing costs, net
    
    
    6,605,245
    
    
    
    6,923,169Other receivables
    
    
    3,123,518
    
    
    
    3,463,029Building, furniture and equipment, net
    
    
    958,797
    
    
    
    1,038,152Other assets
    
    
    553,019
    
    
    
    2,633,072Total assets
    
    $
    512,917,035
    
    
    $
    518,314,042LIABILITIES AND STOCKHOLDERS (DEFICIT)Liabilities:Notes
payable, net of debt discount of $172,901 at March 31, 2011
and $181,616 at December 31, 2010
    
    $
    1,294,631,834
    
    
    $
    1,340,838,509Deferred dividend income
    
    
    31,887,898
    
    
    
    Nonrecourse liability
    
    
    4,969,105
    
    
    
    7,500,863Accounts payable and accrued expenses
    
    
    2,545,794
    
    
    
    9,454,136Derivative liabilities, at fair value
    
    
    
    
    
    
    4,922,375Income tax payable, net
    
    
    884,439
    
    
    
    274,266Terminated derivative liability
    
    
    14,662,661
    
    
    
    8,200,000Total liabilities
    
    
    1,349,581,731
    
    
    
    1,371,190,149Commitments 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: 8,028,795
at March 31, 2011 and 8,028,795 at December 31, 2010
    
    
    20,593,812
    
    
    
    20,588,782Noncontrolling interest in subsidiary
    
    
    3,183,492
    
    
    
    3,174,632Accumulated other comprehensive (loss)
    
    
    (1,290,450
    )
    
    
    (3,140,312
    )Retained (deficit)
    
    
    (859,151,550
    )
    
    
    (873,499,209
    )Total stockholders (deficit)
    
    
    (836,664,696
    )
    
    
    (852,876,107
    )Total liabilities and stockholders (deficit)
    
    $
    512,917,035
    
    
    $
    518,314,042
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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 Three Months Ended March 31,2011
    
    
    2010Revenues:Interest income
    
    $
    216,838
    
    
    $
    11,475,228Dividend income
    
    
    31,887,898
    
    
    
    10,629,299Fair valuation adjustments
    
    
    (719,210
    )
    
    
    (3,771,042
    )Servicing fees and other income
    
    
    3,595,615
    
    
    
    1,178,557Total revenues
    
    
    34,981,141
    
    
    
    19,512,042Operating Expenses:Interest expense
    
    
    16,189,444
    
    
    
    19,019,243Collection, general and administrative
    
    
    3,951,205
    
    
    
    6,867,983Amortization of deferred financing costs
    
    
    317,924
    
    
    
    34,637Depreciation
    
    
    83,049
    
    
    
    145,512Total expenses
    
    
    20,541,622
    
    
    
    26,067,375Income/(loss) before provision for income taxes
    
    
    14,439,519
    
    
    
    (6,555,333
    )Income tax
    
    
    83,000
    
    
    
    98,300Net income/(loss)
    
    
    14,356,519
    
    
    
    (6,653,633
    )Net income attributed to noncontrolling interest
    
    
    8,860
    
    
    
    65,331Net income/(loss) attributed to common stockholders
    
    $
    14,347,659
    
    
    $
    (6,718,964
    )Net income/(loss) per common share:Basic and diluted
    
    $
    1.79
    
    
    $
    (0.84
    )Weighted average number of shares outstanding:Basic and diluted
    
    
    8,027,756
    
    
    
    8,020,256
   4




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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, 2011
    
    
    8,028,795
    
    
    $
    20,588,782
    
    
    $
    3,174,632
    
    
    $
    (3,140,312
    )
    
    $
    (873,499,209
    )
    
    $
    (852,876,107
    )Stock-based compensation
    
    
    
    
    
    
    5,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,030Net income attributed to noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    8,860
    
    
    
    
    
    
    
    
    
    
    
    8,860Amortization  unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,849,862
    
    
    
    
    
    
    
    1,849,862Net income attributed to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,347,659
    
    
    
    14,347,659BALANCE, MARCH 31, 2011
    
    
    8,028,795
    
    
    $
    20,593,812
    
    
    $
    3,183,492
    
    
    $
    (1,290,450
    )
    
    $
    (859,151,550
    )
    
    $
    (836,664,696
    )
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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
 
 Three Months Ended March 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss) attributed to common shareholders
    
    $
    14,347,659
    
    
    $
    (6,718,964
    )Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:Depreciation
    
    
    83,049
    
    
    
    145,512Fair valuation adjustments
    
    
    (719,210
    )
    
    
    3,771,042Principal collections on mortgage loans and real estate held for sale, net
    
    
    
    
    
    
    5,627,977Paid in kind interest
    
    
    13,838,859
    
    
    
    8,434,273Proceeds from the sale of real estate held for sale
    
    
    2,531,758
    
    
    
    3,180,865Reductions of nonrecourse liability
    
    
    (1,399,546
    )
    
    
    (10,815,107
    )Amortization of deferred financing costs
    
    
    317,924
    
    
    
    34,637Amortization of debt discount
    
    
    8,715
    
    
    
    890Stock-based compensation
    
    
    5,030
    
    
    
    15,170Net income attributed to noncontrolling interest in subsidiary
    
    
    8,860
    
    
    
    65,331Changes in operating assets and liabilities:Accrued interest receivable
    
    
    (4,854
    )
    
    
    89Other receivables
    
    
    339,511
    
    
    
    35,463Deferred dividend income
    
    
    31,887,898
    
    
    
    Income tax receivable
    
    
    
    
    
    
    3,738,532Other assets
    
    
    2,080,053
    
    
    
    (259,614
    )Taxes payable
    
    
    610,173
    
    
    
    Accounts payable and accrued expenses
    
    
    (9,980,855
    )
    
    
    2,073,558Terminated derivative liability
    
    
    6,462,661
    
    
    
    Net cash provided by operating activities
    
    
    60,417,685
    
    
    
    9,329,654CASH FLOWS FROM INVESTING ACTIVITIES:(Increase) in restricted cash
    
    
    (52,169
    )
    
    
    (2,637
    )Principal collections on notes receivable
    
    
    178,848
    
    
    
    241,619Purchase of building, furniture and equipment
    
    
    (3,694
    )
    
    
    (5,677
    )Net cash provided by investing activities
    
    
    122,985
    
    
    
    233,305CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments of notes payable
    
    
    (60,054,249
    )
    
    
    (6,522,443
    )Net cash (used in) financing activities
    
    
    (60,054,249
    )
    
    
    (6,522,443
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    486,421
    
    
    
    3,040,516CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    12,640,619
    
    
    
    15,963,115CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    13,127,040
    
    
    $
    19,003,631SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    5,639,194
    
    
    $
    7,892,289Cash payments for taxes
    
    $
    14,087
    
    
    $
    173,525
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FRANKLIN CREDIT HOLDING CORPORATION AND SUBSIDIARIES
 
  1.
    
    BUSINESS
  Overview
 Recent Developments  May 2011 Term Sheet with The Huntington National Bank (the Bank or
Huntington) and Termination of Interest Rate Swap Agreements
     
    
    reducing the outstanding balance of the Banks portion of tranche A debt
pursuant to the terms of the Legacy Credit Agreement by an amount equal to $478
million, and releasing, canceling and discharging Franklin Holding and FCMC from any
liability in connection with
the Specified Default and under any interest rate hedge agreements entered into with the
Bank; and,
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
    
    forgiving that portion of the indebtedness owed to the Bank relating to the
past terminations of interest rate hedge agreements in the approximate aggregate amount
of $12.9 million and obtaining from one of its participants, which has a right of
subrogation, forgiveness of approximately $1.8 million.
     Investment in REIT Securities  Dividend
   Going Concern Uncertainty  Franklin Holding
   8




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Potential FCMC Spin Off
      9




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The Companys Business
 Franklin Credit Holding Corporation (FCHC).
         10




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Franklin Credit Management Corporation (FCMC).
    11




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Franklins Business  Loan Servicing, Collections and Recovery Servicing
    Loan Servicing and Collection Operations
   12




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Customer Service .
 Collections .
 Loss Mitigation .
  13




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Loan Boarding and Administration .
   Real Estate .
 Deficiency Recovery & Judgment Processing Department (Recovery) .
  14




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Face to Face Home Solutions (Face to Face) .
 Client Relations .
 Training .
 Quality Control .
 Home Affordable Modification Program
  Licenses to Service Loans
   15




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16




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Due Diligence Services
  Financing
      2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   17




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Recent Accounting Pronouncements
 Receivables (Topic 310): Deferral of the Effective Date of Disclosures
about Troubled Debt Restructurings in Update No. 2010-20 . Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses,
 Income Taxes, (Topic 740) Accounting for Certain
Tax Effects of the Health Care Reform Acts
  18




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3.
    
    CASH AND CASH EQUIVALENTS
  4.
    
    INVESTMENT IN PREFERRED AND COMMON STOCK (HUNTINGTON REIT SECURITIES)
       19




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5.
    
    INVESTMENT IN TRUST CERTIFICATES AT FAIR VALUE, MORTGAGE LOANS AND REAL ESTATE HELD FOR SALE,
AND NOTES RECEIVABLE HELD FOR SALE
  Three Months Ended March 31,2011
    
    
    2010Balance, January 1
    
    $
    1,505,978
    
    
    $
    69,355,735Trust distributions
    
    
    
    
    
    
    (3,142,005
    )Transfers (out)
    
    
    (508,311
    )
    
    
    (640,045
    )Fair value adjustments, net
    
    
    
    
    
    
    2,005,836Balance, March 31
    
    $
    997,667
    
    
    $
    67,579,521
   Three Months Ended March 31,2011
    
    
    2010Balance, January 1
    
    $
    7,500,863
    
    
    $
    345,441,865REO sales
    
    
    (2,531,758
    )
    
    
    (3,180,865
    )Principal payments
    
    
    
    
    
    
    (7,634,242
    )Loans written off
    
    
    
    
    
    
    (7,021
    )Fair value adjustments, net
    
    
    
    
    
    
    1,975,296Balance, March 31
    
    $
    4,969,105
    
    
    $
    336,595,033
   20




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Three Months Ended March 31,2011
    
    
    2010Balance, January 1
    
    $
    2,857,312
    
    
    $
    3,575,323Principal payments
    
    
    (178,848
    )
    
    
    (241,619
    )Loans written off
    
    
    (3,819
    )
    
    
    (4,748
    )Fair value adjustments, net
    
    
    99,128
    
    
    
    16,184Balance, March 31
    
    $
    2,773,773
    
    
    $
    3,345,140
  6.
    
    FAIR VALUATION ADJUSTMENTS
   Three Months Ended March 31,2011
    
    
    2010Gain on REO sold
    
    $
    417,971
    
    
    $
    1,772,900Valuation gain on mortgage loans and REO
    
    
    
    
    
    
    1,975,296Valuation (loss) on nonrecourse liability
    
    
    
    
    
    
    (1,975,296
    )Valuation gain on trust certificates
    
    
    
    
    
    
    2,005,836Valuation gain on notes receivable
    
    
    99,128
    
    
    
    16,184Other adjustments
    
    
    (1,236,309
    )
    
    
    (7,565,962
    )(Loss) on valuation
    
    $
    (719,210
    )
    
    $
    (3,771,042
    )
   21




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7.
    
    DERIVATIVES
 Derivatives and Hedging
      22




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Three Months Ended March 31,2011
    
    
    2010Balance, January 1
    
    $
    (4,922,375
    )
    
    $
    (13,144,591
    )Cash settlements
    
    
    4,922,375
    
    
    
    3,021,296Fair value adjustments
    
    
    
    
    
    
    (2,184,240
    )Balance, March 31
    
    $
    
    
    
    $
    (12,307,535
    )
 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.
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Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Level 3Interest-rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Investment in trust certificates
    
    
    
    
    
    
    
    
    
    
    997,667
    
    
    
    Nonrecourse liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,969,105
    )Total
    
    $
    
    
    
    $
    
    
    
    $
    997,667
    
    
    $
    (4,969,105
    )
  Investments
    
    
    LiabilitiesBalance, January 1, 2011
    
    $
    1,505,978
    
    
    $
    (7,500,863
    )Total unrealized gains/(losses)
    
    
    
    
    
    
    Transfers in/(out)
    
    
    (508,311
    )
    
    
    Distributions/payments
    
    
    
    
    
    
    2,531,758Balance, March 31, 2011
    
    $
    997,667
    
    
    $
    (4,969,105
    )
  Level 1
    
    
    Level 2
    
    
    Level 3Mortgage loans and real estate held for sale
    
    $
    
    
    
    $
    
    
    
    $
    4,969,105
 9.
    
    NOTES PAYABLE AND FINANCING AGREEMENTS
   24




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Restructuring Agreements with Lead Lending Bank
 December Sale of Remaining Loans and Participation Interest in Unrestructured Debt with the Bank
      25




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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 Mr. Axon entering into an agreement (the Deferred Payment Agreement)
providing that upon each monetizing transaction, dividend or distribution (other than
the sale, restructuring or spin off of FCMC (each referred to as the 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 of qualifying transactions
(as defined in the agreement), in excess of a threshold of $4 million of consideration
in respect of such transactions; 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 Mr. Axons note. FCMC made the $1 million payment to the Bank prior to November 22,
2010, and the Bank released the Real Estate.
   
    
    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;
  26




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
    
    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 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.
   
    
    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, Mr. Axon, 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;
  27




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
    
    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 under funded 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 under funded, 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.
  
    
    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.
  28




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##### Table of Contents



Amendment to Legacy Credit Agreement.
  Amendment to Licensing Credit Agreement.
 Amendment to Servicing Agreement with the Bank.
 EBIDTA Payment.
 Servicing Agreement with Bosco II.
  29




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##### Table of Contents



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 the New Trust 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).
  30




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##### 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;
  31




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##### 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; 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, and Mr. Axons
collateral has been released by the Bank, pursuant to the September 2010 Transaction.)
 New Trust Servicing Agreement.
   32




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##### Table of Contents



Forbearance Agreements with Lead Lending Bank
    March 2009 Restructuring
   10.
    
    NONCONTROLLING INTEREST
   33




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##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010Balance, January 1
    
    $
    3,174,632
    
    
    $
    1,657,275Net income attributed to noncontrolling interest
    
    
    8,860
    
    
    
    65,331Balance, March 31
    
    $
    3,183,492
    
    
    $
    1,722,606
 11.
    
    CERTAIN CONCENTRATIONS
 Third Party Servicing Agreements
  Location
    
    March 31, 2011California
    
    
    27.11
    %Florida
    
    
    7.98
    %New Jersey
    
    
    6.86
    %New York
    
    
    6.38
    %Texas
    
    
    5.46
    %Pennsylvania
    
    
    3.30
    %Illinois
    
    
    3.06
    %Ohio
    
    
    3.05
    %Georgia
    
    
    2.89
    %Michigan
    
    
    2.76
    %All Others
    
    
    31.15
    %100.00
    %
 Financing
  34




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##### Table of Contents



12.
    
    RELATED PARTY TRANSACTIONS
 Restructuring
 Bosco-Related Entities
 Bosco I Servicing Agreement
     35




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##### Table of Contents



Bosco II Servicing Agreement
   Bosco III Servicing Agreement and Participation Interest in Unrestructured Debt with the Bank
   36




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##### Table of Contents



Other Significant Related Party Transaction with the Companys Chairman
 13.
    
    SUBSEQUENT EVENT
   
    
    reducing the outstanding balance of the Banks portion of tranche A debt
pursuant to the terms of the Legacy Credit Agreement by an amount equal to $478
million, and releasing, canceling and discharging Franklin Holding and FCMC from any
liability in connection with the Specified Default and under any interest rate hedge
agreements entered into with the Bank; and,
 
    
    forgiving that portion of the indebtedness owed to the Bank relating to the
past terminations of interest rate hedge agreements in the approximate aggregate amount
of $12.9 million and obtaining from one of its participants, which has a right of
subrogation, forgiveness of approximately $1.8 million.
   
    
    eliminate the covenant in the Legacy Credit Agreement with respect to
activities of Franklin Credit Loan Servicing LLC (FCLS), which is an inactive limited
purpose entity formed as part of the Reorganization with assets of approximately
$370,000) and permit FCLS to dissolve and transfer or distribute its assets to Franklin
Holding or to merge into Franklin Holding, and to release the equity interests of FCLS
from any security agreement or pledge in connection with any merger into Franklin
Holding;
  37




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##### Table of Contents




    
    release Franklin Holding from any obligation under its limited recourse
guaranty dated March 31, 2009, which was entered into in connection with the Legacy
Credit Agreement, and remove Franklin Holding from the definition of guarantor under
the Legacy Credit Agreement; provided that Franklin Holding shall remain a pledgor,
other than with respect to the interests of FCLS, under its amended and restated pledge
agreement dated March 31, 2009 and entered into pursuant to the Legacy Credit Agreement
(which includes a pledge of 100% of the equity interests in all direct and indirect
subsidiaries of Franklin Holding other than FCMC); and,
 
    
    waive the Specified Default.
      
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   38




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Safe Harbor Statements.
  39




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Application of Critical Accounting Policies and Estimates
 Transfers and Servicing
 
 Serviced for Others Portfolio
       40




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March 31, 2011Number
    
    
    Unpaid
    
    
    Percentage of TotalProperty Types
    
    of Loans
    
    
    Principal Balance
    
    
    Principal BalanceResidential 1-4 family
    
    
    17,261
    
    
    $
    1,003,803,033
    
    
    
    63.94
    %Condos, co-ops, PUD dwellings
    
    
    2,788
    
    
    
    161,829,789
    
    
    
    10.31
    %Manufactured and mobile homes
    
    
    428
    
    
    
    10,923,632
    
    
    
    0.70
    %Secured, property type unknown(1)
    
    
    1,193
    
    
    
    17,174,709
    
    
    
    1.09
    %Commercial
    
    
    39
    
    
    
    2,722,551
    
    
    
    0.17
    %Unsecured loans(2)
    
    
    10,203
    
    
    
    373,388,125
    
    
    
    23.79
    %Total
    
    
    31,912
    
    
    $
    1,569,841,839
    
    
    
    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.  41




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March 31, 2011Contractual DelinquencyDays Past Due
    
    Amount
    
    
    %Performing  Current
    
    0  30 days
    
    $
    181,574,190
    
    
    
    11.57
    %Delinquent
    
    31  60 days
    
    
    15,623,399
    
    
    
    1.00
    %61  90 days
    
    
    8,443,238
    
    
    
    0.54
    %90+ days
    
    
    764,981,654
    
    
    
    48.73
    %Modified Loans
    
    0  30 days
    
    
    139,630,927
    
    
    
    8.89
    %Delinquent
    
    31  60 days
    
    
    21,977,705
    
    
    
    1.40
    %61  90 days
    
    
    9,728,018
    
    
    
    0.62
    %90+ days
    
    
    38,786,480
    
    
    
    2.47
    %Bankruptcy
    
    0  30 days
    
    
    22,012,196
    
    
    
    1.40
    %Delinquent
    
    31  60 days
    
    
    4,067,827
    
    
    
    0.26
    %61  90 days
    
    
    2,736,410
    
    
    
    0.17
    %90+ days
    
    
    176,275,661
    
    
    
    11.23
    %Foreclosure
    
    0  30 days
    
    
    234,772
    
    
    
    0.01
    %Delinquent
    
    31  60 days
    
    
    
    
    
    
    61  90 days
    
    
    263,626
    
    
    
    0.02
    %90+ days
    
    
    183,505,736
    
    
    
    11.69
    %Total
    
    $
    1,569,841,839
    
    
    
    100.00
    %All current loans
    
    0  30 days
    
    $
    343,452,085
    
    
    
    21.88
    %
   42




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March 31, 2011Contractual DelinquencyDays Past Due
    
    Number of Loans
    
    
    %Performing  Current
    
    0  30 days
    
    
    4,723
    
    
    
    14.80
    %Delinquent
    
    31  60 days
    
    
    339
    
    
    
    1.06
    %61  90 days
    
    
    200
    
    
    
    0.63
    %90+ days
    
    
    18,892
    
    
    
    59.20
    %Modified Loans
    
    0  30 days
    
    
    1,612
    
    
    
    5.05
    %Delinquent
    
    31  60 days
    
    
    252
    
    
    
    0.79
    %61  90 days
    
    
    127
    
    
    
    0.40
    %90+ days
    
    
    733
    
    
    
    2.30
    %Bankruptcy
    
    0  30 days
    
    
    576
    
    
    
    1.81
    %Delinquent
    
    31  60 days
    
    
    97
    
    
    
    0.30
    %61  90 days
    
    
    70
    
    
    
    0.22
    %90+ days
    
    
    3,339
    
    
    
    10.46
    %Foreclosure
    
    0  30 days
    
    
    2
    
    
    
    0.01
    %Delinquent
    
    31  60 days
    
    
    
    
    
    
    61  90 days
    
    
    4
    
    
    
    0.01
    %90+ days
    
    
    946
    
    
    
    2.96
    %Total
    
    
    31,912
    
    
    
    100.00
    %All current loans
    
    0  30 days
    
    
    6,913
    
    
    
    21.66
    %
   March 31, 2011Number
    
    
    Unpaid
    
    
    Percentage of TotalLien Position
    
    of Loans
    
    
    Principal Balance
    
    
    Principal Balance1st Liens
    
    
    5,089
    
    
    $
    479,352,122
    
    
    
    30.54
    %2nd Liens
    
    
    26,823
    
    
    
    1,090,489,717
    
    
    
    69.46
    %Total
    
    
    31,912
    
    
    $
    1,569,841,839
    
    
    
    100.00
    %
  43




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March 31, 2011Number
    
    
    Unpaid
    
    
    Percentage of TotalLocation
    
    of Loans
    
    
    Principal Balance
    
    
    Principal BalanceCalifornia
    
    
    5,195
    
    
    $
    425,556,128
    
    
    
    27.11
    %Florida
    
    
    2,580
    
    
    
    125,289,501
    
    
    
    7.98
    %New Jersey
    
    
    825
    
    
    
    107,773,189
    
    
    
    6.86
    %New York
    
    
    1,202
    
    
    
    100,103,133
    
    
    
    6.38
    %Texas
    
    
    3,223
    
    
    
    85,644,624
    
    
    
    5.46
    %Pennsylvania
    
    
    1,009
    
    
    
    51,870,753
    
    
    
    3.30
    %Illinois
    
    
    1,217
    
    
    
    47,982,487
    
    
    
    3.06
    %Ohio
    
    
    1,620
    
    
    
    47,882,140
    
    
    
    3.05
    %Georgia
    
    
    1,196
    
    
    
    45,376,153
    
    
    
    2.89
    %Michigan
    
    
    1,588
    
    
    
    43,320,177
    
    
    
    2.76
    %All Others
    
    
    12,257
    
    
    
    489,043,554
    
    
    
    31.15
    %Total
    
    
    31,912
    
    
    $
    1,569,841,839
    
    
    
    100.00
    %
 Real Estate Assets Serviced for Others
  
 Results of Operations  Franklin Credit Management Corporation (FCMC)
     44




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45




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46




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Three Months Ended
    
    
    Three Months EndedSTATEMENT OF INCOME
    
    March 31, 2011
    
    
    March 31, 2010REVENUES:Servicing fees and other income
    
    $
    3,712,323
    
    
    $
    5,675,865Interest income
    
    
    5,121
    
    
    
    9,246Total revenues
    
    
    3,717,444
    
    
    
    5,685,111OPERATING EXPENSES:Interest expense
    
    
    
    
    
    
    21,858Collection, general and administrative
    
    
    3,560,095
    
    
    
    4,431,033Depreciation
    
    
    83,049
    
    
    
    144,356Total operating expenses
    
    
    3,643,144
    
    
    
    4,597,247INCOME BEFORE PROVISION FOR INCOME TAXES
    
    $
    74,300
    
    
    $
    1,087,864Provision for income taxes
    
    
    30,000
    
    
    
    434,550NET INCOME
    
    $
    44,300
    
    
    $
    653,314
 BALANCE SHEET
    
    At March 31, 2011
    
    
    At December 31, 2010ASSETS:Cash and cash equivalents
    
    $
    12,506,601
    
    
    $
    12,071,212Restricted cash
    
    
    15,389,709
    
    
    
    7,304,521Receivables, fixed and other assets
    
    
    4,888,526
    
    
    
    5,413,821Total assets
    
    $
    32,784,836
    
    
    $
    24,789,554LIABILITIES:Servicing liabilities
    
    $
    15,389,709
    
    
    $
    7,304,521Other liabilities
    
    
    1,477,665
    
    
    
    1,611,871Total liabilities
    
    $
    16,867,374
    
    
    $
    8,916,392STOCKHOLDERS EQUITY
    
    $
    15,917,462
    
    
    $
    15,873,162Total liabilities and stockholders equity
    
    $
    32,784,836
    
    
    $
    24,789,554SERVICING PORTFOLIO:Number of loans serviced
    
    
    32,000
    
    
    
    32,400Unpaid principal balance serviced
    
$
    1.60 billion
    
    
$
    1.60 billion
   47




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Results of Operations  Franklin Credit Holding Corporation
      48




---



##### Table of Contents



Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 Overview.
   49




---



##### Table of Contents



Revenues.
      50




---



##### Table of Contents



Operating Expenses.
     51




---



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52




---



##### Table of Contents



Liquidity and Capital Resources
 General
    Short-term Investments.
 Cost of Funds.
  53




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Under the terms of theForbearance Agreementsand Credit AgreementIn accordance with the
    
    
    excludedterms of the Restructuring
    
    
    from the RestructuringAgreements
    
    
    AgreementsFHLB 30-day LIBOR advance rate plus 2.60%
    
    $
    
    
    
    $
    15,675,136FHLB 30-day LIBOR advance rate plus 2.75%
    
    
    
    
    
    
    23,035,122LIBOR plus 2.25% (Tranche A)
    
    
    653,646,101
    
    
    
    LIBOR plus 2.75% (Tranche B)
    
    
    433,335,300
    
    
    
    15.00% (Tranche C)
    
    
    169,113,076
    
    
    
    $
    1,256,094,477
    
    
    $
    38,710,258
  Terms of the Restructured Indebtedness under the Legacy Credit Agreement.
 Outstanding
    
    
    OutstandingPrincipal Amount
    
    
    Principal Amountat March 31, 2009 
    
    
    at March 31, 2011 
    
    
    Applicable Interest
    
    
    Required MonthlyFranklin
    
    
    Franklin
    
    
    Margin Over LIBOR
    
    
    PrincipalAsset/Tribeca
    
    
    Asset/Tribeca
    
    
    (basis points)
    
    
    AmortizationTranche A
    
    $
    838,000,000
    
    
    $
    654,000,000
    
    
    
    225
    
    
    NoneTranche B
    
    $
    407,000,000
    
    
    $
    433,000,000
    
    
    
    275
    
    
    NoneTranche C
    
    $
    125,000,000
    
    
    $
    169,000,000
    
    
    
    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%.  Cash Flow from Operating, Investing and Financing Activities
   54




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Borrowings
   55




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Interest Rate Swaps
   56




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Impact of Inflation
  Interest Rate Risk
     57




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Real Estate Risk
  
 ITEM 4T.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
   58




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##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
   Risks Related to Our Business
 Our borrowings are sensitive to changes in interest rates.
  We will not be able to reduce the Legacy Debt.
   59




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##### Table of Contents



Our operating losses commencing with the quarter ended September 30, 2011 and
in 2012 and beyond will increase due to the surrender and transfer to the Bank of the REIT
securities.
  Our business is sensitive to, and can be materially affected by, changes in interest rates.
   Risks Related to Our Business
 
    
    The Company may not be able to continue as a going concern.
    
    Our Restructuring Agreements and Forbearance Agreements 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.
    
    If our lenders fail to extend the Forbearance Agreement covering the Unrestructured Debt,
the Unrestructured Debt will become due and payable September 2011.
    
    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.
    
    Our ability to fund operating expenses depends on the cash flow received from servicing
loans for third parties.
    
    A prolonged economic slowdown or a lengthy or severe recession could harm our servicing
operations, particularly if it results in a decline in the real estate market.
  60




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
    
    We may not be successful in expanding or implementing our planned business of providing
servicing and other mortgage related services for other entities on a fee-paying basis.
    
    If we do not obtain and maintain the appropriate state licenses, we will not be allowed to
service mortgage loans in affected states, which would adversely affect our operations.
    
    A significant amount of the mortgage loans that we originated and acquired prior to the
March 2009 Restructuring and continue to service on behalf of third parties are secured by
property in New York, New Jersey, Florida, Texas and California, and our operations could be
harmed by economic downturns or other adverse events in these states.
    
    We may not be adequately protected against the risks inherent in 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.
    
    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.
    
    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 took title.
    
    A loss of our Chairman and President may adversely affect our operations.
  61




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Risks Related to Our 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 and abusive servicing
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.
 
    
    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 is quoted 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
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ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
   
    
    reducing the outstanding balance of the Banks portion of Tranche A debt
pursuant to the terms of the Legacy Credit Agreement by an amount equal to $478
million, and releasing, canceling and discharging Franklin Holding and FCMC from any
liability in connection with the Specified Default and under any interest rate hedge
agreements entered into with the Bank; and,
 
    
    forgiving that portion of the indebtedness owed to the Bank relating to the
past terminations of interest rate hedge agreements in the approximate aggregate amount
of $12.9 million and obtaining from one of its participants, which has a right of
subrogation, forgiveness of approximately $1.8 million.
   
    
    eliminate the covenant in the Legacy Credit Agreement with respect to
activities of Franklin Credit Loan Servicing LLC (FCLS), which is an inactive limited
purpose entity formed as part of the Reorganization with assets of approximately
$370,000) and permit FCLS to dissolve and transfer or distribute its assets to Franklin
Holding or to merge into Franklin Holding, and to release the equity interests of FCLS
from any security agreement or pledge in connection with any merger into Franklin
Holding;
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
    
    release Franklin Holding from any obligation under its limited recourse
guaranty dated March 31, 2009, which was entered into in connection with the Legacy
Credit Agreement, and remove Franklin Holding from the definition of guarantor under
the Legacy Credit
Agreement; provided that Franklin Holding shall remain a pledgor, other than with
respect to the interests of FCLS, under its amended and restated pledge agreement dated
March 31, 2009 and entered into pursuant to the Legacy Credit Agreement (which includes
a pledge of 100% of the equity interests in all direct and indirect subsidiaries of
Franklin Holding other than FCMC); and,
 
    
    waive the Specified Default.
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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, 2008.10.1
    
    
    Limited Waiver dated as of March 28, 2011, by and among The
Huntington National Bank, as Administrative Agent, the Registrant
and Franklin Credit Management Corporation, under the Amended and
Restated Credit Agreement (Licensing) dated as of March 31, 2009,
as amended. Incorporated by reference to Exhibit 10.100 to the
Registrants Annual Report on Form 10-K for the annual period
ended December 31, 2010, filed with the Commission on March 30,
2011.10.2*
    
    
    Settlement Term Sheet, dated May 11, 2011, by and among The
Huntington National Bank, the Registrant, Franklin Credit Asset
Corporation, Franklin Asset, LLC, each other Borrower listed on
the signature pages to the Legacy Credit Agreement or any schedule
thereto, and Franklin Credit Management Corporation.31.1*
    
    
    Rule 13a-14(a) Certification of Chief Executive Officer of the
Registrant in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002.31.2*
    
    
    Rule 13a-14(a) Certification of Chief Financial Officer of the
Registrant in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002.32.1*
    
    
    Section 1350 Certification of Chief Executive Officer of the
Registrant in accordance with Section 906 of the Sarbanes-Oxley
Act of 2002.32.2*
    
    
    Section 1350 Certification of Chief Financial Officer of the
Registrant in accordance with Section 906 of the Sarbanes-Oxley
Act of 2002.
 
 *
    
    Filed herewith.()
    
    Management contracts and compensation plans and arrangements.  65




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SIGNATURES
  FRANKLIN CREDIT HOLDING CORPORATIONMay 12, 2011By:
    /s/ THOMAS J. AXONThomas J. AxonPresident
(Principal Executive Officer)May 12, 2011By:
    /s/   PAUL D. COLASONOPaul D. ColasonoExecutive Vice President and Chief Financial Officer

(Principal Financial Officer)