Knapp Forming Financial Services Firm for Trafalgar

Charles W. Knapp, the former chairman of Financial Corp. of America who was chased out of the savings and loan industry, is creating a nationwide financial services company that would provide mortgages, develop real estate and otherwise act much like an S&L.;

Through a subsidiary of his Los Angeles-based Trafalgar Holdings, Knapp recently bought a small Newport Beach mortgage company called Enterprise Funding and has a tentative deal to buy Landmark Mortgage in Santa Ana.

The two are the first of up to 200 small mortgage companies that the subsidiary, Trafalgar Capital, hopes to buy in the next three years, said Lawrence Taggart, who heads the subsidiary.

In a related move, Trafalgar Holdings formed a joint venture with a group of individuals in Austin, Tex., to look into possible purchases of foreclosed real estate in the Southwest, a plan that would aid hard-hit S&Ls; there by ridding them of the money-losing properties.

“Charlie wants to be one of the most substantial lenders in the country,” Taggart said. “He’ll do most of the things S&Ls; do, but he’ll operate privately.” The company will not accept deposits so there will be no need for deposit insurance, he added.

Trafalgar Capital has funded $325 million in loans in its fiscal first quarter and expects to fund more than $1 billion in the fiscal year ending Nov. 30, said Donald Reynolds, a spokesman for Trafalgar Holdings.

Federal regulators ousted Knapp in 1984 from his post as chairman of Irvine-based FCA, the parent of financially beleaguered American Savings & Loan, the nation’s largest S&L.; Regulators and Knapp blame each other for a $7 billion run on deposits in 1984, as well as for the S&L;’s continuing woes and its current insolvency.

Knapp formed Trafalgar Holdings in late 1984 and brought Taggart on board last July to plan and build the nationwide mortgage network. Taggart is a former commissioner of the state Department of Savings and Loan.

“Trafalgar Capital will become the financial services firm for Trafalgar Holdings,” Taggart said. Until the subsidiary buys a public company in a so-called reverse merger and is able to attract investor funds, it will continue to be funded by Knapp, he said.

Trafalgar Capital will target mainly small mortgage companies that fund $3 million to $8 million in loans a month. Enterprise Funding, for instance, is lending about $4 million a month, Taggart said.

A few acquisitions will be larger regional firms such as Landmark Mortgage, he said. Landmark has five offices and funds about $12 million in loans a month.

With 200 companies, Trafalgar Capital would hope to join the big leagues of mortgage lending, a highly competitive field. The nation’s largest mortgage lender, New York-based Citicorp, financed $13 billion in home loans in 1986, but that represented only 3% of the record $442 billion in mortgages loaned by the industry that year.

Taggart declined to say how much Trafalgar Capital paid for the two mortgage firms. But he said the company expects to pay up to $250,000 for small mortgage firms and $500,000 to $1 million for firms funding $25 million to $30 million in loans a month.

Some of the firms to be acquired will be merged into Trafalgar Mortgage, a new subsidiary of Trafalgar Capital, but other acquisitions will operate under their own names as subsidiaries of Trafalgar Mortgage, Taggart said.