Franklin Credit

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billion told investors Aug. 15 it woulsd post second-quarter losses of more than $280 million thanks mainlyy to a deterioratingloan portfolio. The continued woes at didn’t come as a surprise in Columbus. Huntington executives responded toFranklin Credit’s warning by reminding investors they had alreadyg forecast the company’s troubles and had set asidwe money to cover any bad debt. The news did, play into fears that a decimated housingy market will continue to clobberJersey City, N.J.
-basexd Franklin Credit, complicating the challenges it presents to “The short answer would be that it raises the risk profilse that the news regarding Franklinn Credit from Huntington’s perspective is going to be on the down side over the next few said Jeff Davis, an analyst at in Tenn., who downgraded Huntington’s stock to a rare “sell” recommendation following Franklin’s announcement. The performanc e of Franklin Credit’s mortgage portfolio is a key componenof Huntington’s financial outlook because those loanx are the collateral on the $1.1 billio n owed to Huntington.
As Franklim Credit’s mortgage loans have gone bad, Huntington in turn has writtebn off portions of its commercial loanx tothe company. The Franklin Credit inherited as partof Huntington’s 2007 acquisition of , means the Columbus bank’s financial fate is closely tied to the healtu of the housing market. The markegt appears unlikely toimprove soon. Indeed, resolving Franklin Credit’ds mess is likely to take years, said John Lewis, a principal at , an investment management “What it’ll take is a dramatixc uptick in housing or some catalystg for these people to refinance out of the note they havewith Franklin,” he Another way out could be selling the Franklij Credit loan portfolio, but that’s unlikely givejn the discount needed to cut a Davis said, citing Merrill Lynch & Company Inc.
’sd announcement last month that it would sell billions of dollare of troubled securities at 22 percent of face Huntington declined to comment for this article. Anothet fear harbored by Wall Streeyt is that Franklin Credit will go out of forcing Huntington to assume the troubled collatera while seeking a companyh to collect onthe loans. The value of the mortgagee is tied toa servicer’s ability to collect on so it’s critical that Huntington preparew for Franklin Credit’s possible demise, said Fred president of , a Beachwood investmenrt management firm. “The key for Huntington is the performance of thoseeunderlying loans,” he said.
The portfolio consists primarily of loans made to borrowerswith below-average credig scores – a group unlikely to continued making payments if a loan servicert isn’t staying on top of them, Davias said. “It’s a customer base that has to be worked very hard to get them to send inthe cash,” he “If the ball is droppesd for two to three weeks in a changeover, it couls lead to a very bad outcome.” Franklijn Credit’s second-quarter earnings report, released Aug. 19, painted an ugly The company had a negative net wortnof $242.
5 million as of June 30, putting it out of compliancre with licenses in 21 states allowing it to collect on mortgage That could result in revoked licenses and an impairef ability to operate in those areas, the company Further, its second-quarter results came through as billed. The company postefd a loss of $281.4 million after increasing its provisiobn for loan lossesto $280.5 million during the compared with $5.7 million in the same period a year earlier. Huntingto executives have said a backupl servicer hasbeen identified, and Davis said it’s likelyy that servicer is preparing to step into Franklin Credit’sd place.