Franklin Credit Management Corp. said this morning that it recorded a net loss for the second quarter of $3.58 million, compared to a loss of $1.39 million in the year-ago period and a loss of $1.95 million during the first quarter. The net loss came in spite of a strong 17 percent increase in revenue from year-ago levels, with the company reporting quarterly revenues of $47.1 million.
Part of the net losses were driven by the acquisition of New York Mortgage's former wholesale origination platform
in February. Franklin Credit's Tribeca Lending business unit absorbed the wholesale platform, and the company said it expects to "reduce annualized personnel costs" at Tribeca by $2 million going forward -- that's codespeak for layoffs.
In spite of the losses, the company took a very upbeat tone in its discussion
, with company executives saying that the opportunity to acquire mortgage portfolios hasn't been better at any time in recent memory:
"We were able to capitalize on the turmoil in the mortgage origination and securitization market during the most recent quarter by purchasing $311 million of pools of 1-4 family loans at an average discount of 16%," observed Gordon Jardin, Chief Executive Officer of Franklin Credit Management Corporation. ... "We have not seen portfolio acquisition opportunities on such attractive terms, including both first lien product and discounts, in many years ... "
The company also took pains to explain that it isn't likely to face a liquidity crunch:
Commenting on the troubled mortgage market and the number of mortgage origination companies that have recently gone out of business as a result, Mr. Jardin noted, "Franklin's business model is not like a typical subprime mortgage originator that is dependent on originating a wide variety of mortgage loans, for sale in the secondary market, funded by short-term warehouse lines. We originate principally a maximum 75% loan-to-value product, called a Liberty loan, essentially for our own portfolio and, unlike most subprime originators, have sold only a very small portion of the loans we have originated. Therefore, we have virtually no repurchase risk. In addition, we acquire pools of seasoned and recently originated mortgage loans at a discount and are not reliant on short-term warehouse lines."
That being said, the company is reliant on longer-term debt facilities; and Franklin Credit does not explicitly report on delinquencies or foreclosures for the loans it holds and services, as some other operations do.
That makes it tough to tell exactly how much poor credit quality is hurting the company's bottom line, but I'd have to guess that there is some impact: the company has essentially doubled its provision for loan losses this year, moving the allowance to nearly $10 million to date versus just $5 million in the same period last year.