Two tentative plans are being debated for bailing out Equity Programs Investment Corp. (EPIC), the real estate investment affiliate of Community Savings & Loan of Bethesda.
Executives involved in the negotiations said, however, they are a long way from working out how to prevent EPIC from defaulting on more than $1 billion in mortgages and mortgage-backed securities.
"A number of mortgage insurance companies have put together the outlines of a proposal. That's still being developed," said William Fitzpatrick, general counsel for Ticor Mortgage Insurance Co., the insurer that stands to lose the most if EPIC collapses.
In addition, Dean Witter Reynolds Inc. is reported to have drawn up a plan for saving EPIC with an infusion of cash from outside investors. A spokesman for Dean Witter, which has been hired as a financial adviser by EPIC, refused to comment on reports that it has assembled a group of investors to rescue EPIC.
It was not clear yesterday whether the insurers and the investment bankers who have stepped into the crisis would work together to avoid the massive losses that would result if EPIC is unable to pay its debts.
EPIC, which set up tax shelter partnerships that own 20,000 houses, announced last week that it is delinquent on some payments on $1.4 billion of mortgages and mortgage-backed securities. A default on these obligations could cost the insurance companies as much as $400 million and inflict additional millions of losses on EPIC investors.
Ticor's Fitzpatrick said Dean Witter made a proposal earlier this week to help out EPIC, but he said the investment firm did not give the details of its plan.
Although speculation has mounted that the insurers would contribute up to $250 million in cash for a bailout -- in hopes of avoiding even bigger losses -- Fitzpatrick and another insurance executive said they would be reluctant to commit funds to any stop-gap measures.
"If the objective of the plan is to take EPIC over, I don't think that solves anybody's problem," said Fitzpatrick. "Ultimately the properties over some period will have to be sold to pay off these mortgages."
"There appears to be a cash flow problem . . . but what the cause of that is, or what needs to be put to it, we just don't have any kind of information," he added.
William Stover, chairman of Old Republic International Corp., whose mortgage insurance unit also insured EPIC securities, said, "It's going to have to be a pretty good plan, so I don't put good money after bad."
Other creditors of the real estate syndicate indicated yesterday they will not help out EPIC with its troubles, and said they are currently reviewing their options for recouping the money they are owed.
"We have no intention of bailing out or infusing capital into EPIC," said Mark J. Riedy, president of Federal National Mortgage Association, which owns $115 million in EPIC mortgages and mortgage-backed securities. A spokesman for the Philadelphia Savings Fund Society, which holds $215 million in EPIC paper, said his firm is not involved in bailout efforts, although he said it has been in touch with other lenders.
News of EPIC's troubles triggered a run on deposits last week at its parent, Community Savings & Loan. Maryland Gov. Harry Hughes has frozen all withdrawals at Community for 20 days to give the state-insured thrift and its subsidiary time to work out its problems. Community's offices remained closed yesterday and the association has not said when they will reopen. EPIC officials did not return phone calls yesterday.
Executives of Dean Witter, the insurance companies and the Wall Street firm of Salomon Brothers Inc. have been working for the last week on efforts to prop up EPIC.
Although a Salomon Brothers spokesman said the firm's direct stake in EPIC is "nil," others in the mortgage-backed securities industry said Salomon is playing a role in the negotiations because of its dominant position in the market.
One official estimated that in a single day Salomon trades as much as $2 billion to $3 billion in mortgage-backed securities -- roughly 40 to 50 percent of the market.
"Maintaining the integrity of the market is very important to them in terms of future business," said the source, who asked not to be identified. "Their reputation is on the line. They place truly staggering amounts of securities with investors."