In the 1980s, Gordon Engle spent his time scrubbing cars on dealer lots from Kansas City to Dallas. Now he focuses on cleaning off a different kind of dirt-charged-off consumer loans from bank portfolios.
Forward Properties, Mr. Engle's Dallas-based private company, has been buying up and turning around bad bank loans for six years now. Since February, Forward Properties has become top priority in Mr. Engle's life. He put his chain of car washes and an apartment rental venture on hold to work exclusively on combing bank portfolios for bad loans.
"After six years, I finally know enough to do something with the information," he said, speaking from his car while traveling between Texas banks.
Big Wall Street-funded companies such as Ocwen Financial in Miami Beach and Commercial Financial Services in Tulsa, Okla., have been snapping up nonperforming and charged-off loan pools at a rapid pace in recent months. But there's plenty of room for entrepreneurs.
Charged-off credit card loans were at a record level in the second quarter, the Federal Deposit Insurance Corp. announced last week. And home lenders increasingly have extended credit to customers with shoddy payment histories, leading experts to believe that a dramatic rise in nonperforming home loans is just an economic downturn away.
Forward Properties buys an average of $1 million a week in charged-off loans from banks in the South with average asset size of $150 million.
Most of the capital Mr. Engle uses is his own, although occasionally he calls in additional investors for larger deals. Their identity is a closely guarded secret, as is the rate of return-but Mr. Engle asserted that the latter is "darned good."
Forward Properties offers banks a no-obligations assessment of their charged-off loans. Often, Mr. Engle said, a bank won't even know what they've got. "They'll have 20 to 100 boxes of old files full of charged-off loans-they don't know who their debtors are or when the loans were charged off."
The bank ships its boxes of files to Forward Properties, which inventories the contents. "We tell them what they have and then offer them a price," Mr. Engle said.
Figuring out the right price to pay for these pools of loans is the "million-dollar question," Mr. Engle said. "It's something that we evaluate on a case-by-case basis."
Buyers of charged-off loans must "really know what they're buying" and then "really baby the stuff," he said.
Forward Properties uses a handful of collection agencies to squeeze money from the loans, some of which have not been paid on in years.
Mr. Engle has a few words of advice for banks with charged-off loans in their portfolios.
"If you're a small bank, under $50 million-$60 million in assets, you probably have a better shot at collecting your receivables than we do because you know more about your customers," he said. "But the bigger the bank, the more advantageous it is for them to sell. If you have two or 2,000 loans, we know more than you do" about how to collect on them.