831246--4/10/2009--FRANKLIN_CREDIT_HOLDING

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Our credit facilities require us to observe certain covenants, and our failure to satisfy such covenants could render us insolvent. If our lenders fail to renew our loans for additional terms or provide us with refinancing opportunities, our indebtedness will become due and payable in 2009. If we do not comply with certain minimum servicing standards in the Forbearance Agreements with the bank, the bank can transfer our rights as servicer to a third party. Our ability to fund operating expenses depends on our principal lender continuing to provide an adequate operating allowance. 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 use estimates for recognizing revenue on a majority of our portfolio investments and our earnings would be reduced if actual results are less than our estimates. When we acquired S D loans, the price we paid was based on a number of assumptions. Material differences between the assumptions we used in determining the value of S D loans we acquired and our actual experience could harm our financial position. If we do not obtain and maintain the appropriate state licenses, we will not be allowed to broker or service mortgage loans in some states, which would adversely affect our operations. A significant amount of the mortgage loans that we originated 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 subprime residential mortgage loans. A number of our second lien mortgage loans are subordinated to ARM or interest-only mortgages that may be subject to monthly payment increases, which may result in delinquencies and increase our risk of loss on these loans. We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, mortgage brokers, sellers of loans we acquired, vendors and our employees. 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. 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 may adversely affect our operations. Risks Related to Our Financial Statements 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 reassessment of our allowance for loan losses. 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 price, sell, service or finance non-prime residential mortgage loans, which could adversely impact our earnings. The broad scope of our operations exposes us to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the federal, state and local levels. If financial institutions face exposure stemming from legal violations committed by the companies to which they provide financing or underwriting services, this could negatively affect the market for whole-loans and mortgage-backed securities. We may be subject to fines or other penalties based upon the conduct of our independent brokers. We are subject to reputational risks from negative publicity concerning the subprime mortgage industry. We are subject to significant legal and reputational risks and expenses under federal and state laws concerning privacy, use and security of customer information. If many of our borrowers become subject to the Servicemembers Civil Relief Act of 2003, our cash flows and interest income may be adversely affected. 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. We have been delisted from The Nasdaq Stock Market, in which case the price and liquidity of our common stock and our ability to access the capital markets has been adversely affected. Our organizational documents, Delaware law and our credit facilities may make it harder for us to be acquired without the consent and cooperation of our board of directors, management and lender. Our quarterly operating results may fluctuate and cause our stock price to decline.

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831246--4/10/2009--FRANKLIN_CREDIT_HOLDING_CORP/DE/