Equity Programs Investment Corp. yesterday made a $2 million mortgage payment and hinted that it may come up with additional cash to prevent more of its $1 billion in mortgage debts from becoming delinquent.
EPIC, the troubled real estate investment affiliate of Community Savings & Loan of Bethesda, disclosed the mortgage payment last night, only 12 hours before a scheduled hearing in a lawsuit seeking to force the company to pay its debts.
Two Washington area banks yesterday asked a federal judge in Alexandria to issue a temporary injunction preventing EPIC from using cash it has collected from rents on more than 20,000 houses owned by tax shelter investment partnerships organized by EPIC.
U.S. District Judge Claude Hilton has scheduled a hearing this morning in Alexandria in the lawsuit filed by National Bank of Washington and First National Bank of Maryland.
In a statement issued last night, EPIC said that after analyzing the finances of its hundreds of tax shelter deals, it made payments yesterday of $2.04 million on $147.4 million worth of mortgages, bringing them up to date.
"EPIC will continue the analysis and make decisions about additional payments," the statement said. Whether other mortgage payments will be made "must be decided on a partnership-by-partnership basis," the company said.
EPIC opened a new chapter in the Maryland savings and loan crisis two weeks ago when it disclosed it could not make monthly payments due on part of its more than $1 billion in mortgage debts. The announcement set off a run by Community depositors, forcing Gov. Harry Hughes to freeze all withdrawals from the association.
Yesterday, Maryland officials disclosed they have called in Federal Reserve Board bank examiners to try to untangle the finances of Community and EPIC. The state has ordered Community to get federal deposit insurance, but the Federal Home Loan Bank has insisted that Community must sever its ties with EPIC in order to qualify for insurance.
In a 10-paragraph statement -- their longest since the EPIC problems erupted -- company officials defended the decision not to make mortgage payments and attacked the legal actions taken against the company, which has been sued by some of its banks, insurance companies and investment partners.
The statement said "EPIC is carrying out its obligations to its limited partners to make certain that current rent proceeds are used in the best interest of the partnership. In many cases, at a time like this, making a partial payment . . . may not be the best use of the rent . . . ."
The company's statement accused United Guaranty Residential Co. of "attempting to avoid its obligations under the mortgage insurance policies" it issued covering EPIC's real estate loans. United Guaranty has filed a lawsuit seeking to void the insurance, claiming it was misled about EPIC's finances. EPIC said United "had full and complete access to the EPIC operation" and "sought out the EPIC business in a very aggressive manner."
The company described as "unfounded" a separate lawsuit filed by the two banks serving as trustees on $950 million of EPIC's mortgage debts. The lawsuit seeks to force EPIC to make mortgage payments and asks for an injunction preventing EPIC from making other use of money that might be used to pay the mortgages.
EPIC called the lawsuit "an unwarranted action to seize assets that rightfully belong to the partnerships." It contended EPIC has the right to do what it wants with its cash until the mortgages are 30 days past due and declared delinquent.
The banks asked for the court order "to prevent the diversion of funds generated by the properties which secure the certificates (which funds are held or controlled by EPIC) to uses other than those authorized" by the agreements surrounding the EPIC mortgages.
Yesterday's moves by EPIC and the banks came as Maryland officials, investment banks and mortgage insurance companies continued working on plans for preventing EPIC from defaulting on its obligations. The failure of EPIC could cost its insurance companies millions of dollars and could cause widespread disruption of the market for mortgage-backed securities, an increasingly popular means of investing in mortgages. Owners of mortgage-backed securities are supposed to receive monthly principal and interest payments, just as if the mortgage itself were owed to them. EPIC is the first major issuer of mortgage-backed securities to miss payments and has shaken investor confidence in the industry.
Efforts to keep EPIC afloat have run into trouble not only because of the unique nature of EPIC's problems, but also because of the complicated ties between EPIC and Community.
It was to untangle the finances that the Federal Reserve was called in, said a state source, who asked not to be named. "The state requested the Federal Reserve examiners and is paying for them. We have state people there, but they need help."
Carl O. Kamp, president of the Federal Home Loan Bank of Atlanta, confirmed reports that bank board examiners reviewing Community's records have left the thrift, but said that does not mean the board has decided against giving Community federal deposit insurance.
"We pulled them out two or three weeks ago because they had all the information they needed at that point," he said, refusing to characterize the examiners' findings. "I don't think anybody could say they are not insurable."