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Special Reports
Warehouse Lending
Franklin Credit Gets New $40MM Warehouse Line
By Jennifer Harmon
Franklin Credit Management Corp., a specialty consumer finance company
engaged in the origination, servicing and resolution of performing and nonperforming residential mortgage loans,
has entered into a new $40 million Flow Warehousing Credit and Security Agreement with Sky Bank.
The new loan facility with Sky Bank will be used to accumulate loans acquired by Franklin through its Flow Acquisition
Group prior to the consolidation of such loans into term debt. The flow warehousing credit and security agreement
does not replace any of the company's existing bank facilities. "This new facility will provide additional
borrowing capacity for our loan acquisition activities," said Gordon Jardin, chief executive officer of Franklin
Credit Management Corp. "We are very pleased to announce our new warehouse facility with Sky Bank and to welcome
LaSalle Bank as a 50% participant."
The company has also reported several modifications to its borrowing agreements, said Paul Colasono, the company's
chief financial officer. "Unlike our existing term debt, new borrowings under our term loan agreement after
June 25, 2006 will not be subject to a 50 basis point success fee upon payoff," he said. "Also, the 75
basis point origination fee has been reduced to 50 basis points on all new term debt incurred to fund acquisitions
of loan pools after June 25, 2006."
In addition, Franklin Credit reported that its lead lending bank has agreed to reduce the interest rate margin
on approximately $475 million of existing term debt, initially by at least 25 basis points no later than October
1, 2006, and by an additional 25 basis points no later than January 1, 2007. "These interest rate margin reductions
could become effective sooner, in accordance with our modification agreement with the bank, should the Federal
Reserve continue to raise rates during the remainder of 2006," added Mr. Jardin.
For the second quarter of 2006, the company reported a net loss of $1.4 million for the three months ended June
30, 2006, vs. net income of $1.8 million in the first quarter of 2006 and net income of $2.0 million in the three
months ended June 30, 2005.
For the six months ended June 30, 2006, total revenues increased 38% to $79.1 million, compared with $57.2 million
in the first half of 2005. Net income for the six months ended June 30, 2006 declined to $397,000 compared with
$4.7 million for the six months ended June 30, 2005. The company said the net loss recorded in this year's second
quarter was principally the result of continued increases in short-term interest rates, which have increased about
210 basis points since March 31, 2005, coupled with certain one-time expenses incurred in the quarter.
Effective June 26, 2006, Franklin Credit has negotiated with its lead lending bank, the elimination on all new
term borrowings of a 50 basis point success fee, along with a reduction in origination fees from 75 basis points
to 50 basis points on funds borrowed to finance the acquisition of loan pools.
Franklin Credit Management originates nonprime mortgage loans for the company's portfolio and for sale into the
secondary market. It focuses on acquiring and originating loans secured by one-four family residential real estate
that generally fall outside the underwriting standards of Fannie Mae and Freddie Mac and involve elevated credit
risk as a result of the absence of income documentation, limited credit histories, higher levels of consumer debt
or past credit difficulties.
Franklin typically purchases loan portfolios at a discount to the unpaid principal balance and originates loans
with interest rates and fees calculated to provide a rate of return adjusted to reflect the elevated credit risk
inherent in these types of loans. The company originates non-prime loans through its wholly owned subsidiary, Tribeca
Lending Corp. and generally holds for investment the loans acquired and a significant portion of the loans originated.
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