B&C Servicing: Franklin Credit Uses Servicing to Manage Credit Risk.(Brief Article)

Franklin Credit Management Corp. here, a buyer of subprime loans across the credit spectrum, employs flexible underwriting standards that allow it to accept loans that might not meet the underwriting criteria of many buyers.

That means every loan - A through D credits, first and second liens - is a candidate for Franklin Credit's portfolio as long as it's secured by residential real estate, Franklin Credit CEO Seth Cohen said.

That's because the company keeps the loans on its own books and services them itself, freeing Franklin Credit from third party underwriting guidelines that an investor or securitization conduit might impose on lenders.

For instance, Franklin Credit buys "fallout" from larger transactions, and the company buys loans that suffer from underwriting mistakes.

By servicing the loans itself, Franklin believes it has the "quality assurance" needed to manage a diverse portfolio of loans.

"You just have a different sense of responsibility from a servicing standpoint if you own the asset," Mr. Cohen said. "We're not going to buy a loan if we are not servicing it."

Not many lenders would base their servicing platform in a high cost market like Manhattan. But Franklin Credit believes it is important to have servicing staff interact with people in the loan acquisition and legal departments to preserve "operational integrity," Mr. ...