A federal judge yesterday delayed his ruling on a request for an injunction against EPIC Mortgage Inc., and, in another development, some observers said they were pessimistic a plan could be worked out to save the faltering group of related real estate companies.
U.S. District Judge Claude Hilton is scheduled to rule this morning on a lawsuit filed by the trustees for nearly $1 billion in EPIC mortgage-backed securities. The trustees, the National Bank of Washington and First National Bank of Maryland are seeking a preliminary order that would prevent EPIC from disbursing any cash to parties other than certificate-holders.
The decision originally was scheduled for yesterday. The case is pending in U.S. District Court in Alexandria.
Meanwhile, some members of the mortgage insurance industry expressed doubts that current negotiations could prevent EPIC from defaulting on payments on more than $1 billion in mortgages and mortgage-backed securities. EPIC's centerpiece, Equity Programs Investment Corp., set up tax-shelter investment partnerships that now own more than 20,000 houses.
EPIC's delinquency on interest and other payments triggered the current crisis at its affiliate, Community Savings & Loan of Bethesda, which has been shut down by an executive order from Maryland Gov. Harry Hughes temporarily banning withdrawals.
New York investment bankers and the companies that insured EPIC's mortgages have been working with Maryland officials to prop up EPIC, the collapse of which could cost investors and insurers hundreds of millions of dollars.
The mortgage insurers are scheduled to meet later this week with Dean Witter Reynolds and Salomon Brothers, the main companies working on the problem, to hear how they are progressing on a bailout plan, said William Stover, president of Old Republic International Corp., whose mortgage insurance unit is heavily exposed at EPIC.
Stover said, however, that his firm would be reluctant to contribute cash to any bailout plan that did not significantly reduce the firm's potential losses, which have been estimated at about $65 million. He also said he was pessimistic any plan could be worked out before the final deadlines for EPIC payments, which are between Sept. 10 and Sept. 20.
Stover and Michael Moleski, an analyst with Moody's Investor Services, said too many parties were involved for an acceptable plan to be worked out in time.
Moleski said the insurance companies, given their already significant exposure, probably would be reluctant to contribute the upwards of $250 million that has been discussed under a reported Dean Witter proposal.
The companies are reviewing the properties underlying the mortgages to detertmine whether the houses are worth as much as the loans made against them.