831246--3/31/2010--FRANKLIN_CREDIT_HOLDING

related topics

{financial, litigation, operation}

{loan, real, estate}

{debt, indebtedness, cash}

{loss, insurance, financial}

{stock, price, operating}

{personnel, key, retain}

{tax, income, asset}

{regulation, change, law}

{product, market, service}

{control, financial, internal}

{system, service, information}

{stock, price, share}

{condition, economic, financial}

{cost, contract, operation}

{provision, law, control}

{interest, director, officer}

{regulation, government, change}

Based on our current rate of collections on the assets we transferred to the Trust under the Restructuring Agreement, without a significant special transaction, we may not be able to achieve the minimum amount of net remittances necessary to reduce the pledge of FCMC stock to the Bank from 70% to a minimum of 20% or at all. If our lenders fail to renew our loans under the Licensing Credit Agreement for additional terms or provide us with refinancing opportunities, our indebtedness under the $2 million revolving line will become due and payable in 2011; and, the draw line for working capital needs of FCMC will expire on May 31, 2010. 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 and the Bank would be able to foreclose on the portion of the stock of FCMC pledged to it. The Bank may transfer our rights as servicer to the assets we transferred to the Trust under the Restructuring Agreement to a third party. 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. The Bank may prevent our pursuing future business opportunities. 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. 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. A significant amount of the mortgage loans that we originated prior to the Restructuring and transferred to the Trust as part of the Restructuring 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. 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 could be brought 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 take title. A loss of our Chairman and President may adversely affect our operations. 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 of 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 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.

Full 10-K form ▸

831246--3/31/2010--FRANKLIN_CREDIT_HOLDING_CORP/DE/