E. F. Hutton Mortgage Corp., a subsidiary of E. F. Hutton Group Inc., filed suit in Baltimore yesterday charging First American Mortgage Co. of Baltimore with diverting funds collected on mortgage loans that should have been passed on to Hutton Mortgage and other investors.

U.S. District Judge James Miller Jr. granted a temporary restraining order late yesterday against First American Mortgage Co. and its director Michael Clott of Owings Mills, preventing the firm from making further mortgage transactions, UPI reported.

The suit, filed in U.S. District Court, charges that First American Mortgage failed to meet the terms of its contract with Hutton Mortgage to service $33.6 million in mortgages when it failed to make a payment of principal and interest due last month. It also charges First American with selling at least 100 mortgages twice and seeks to recover $9.7 million Hutton claims it is owed, plus interest and other damages.

First American officials could not be reached yesterday for comment.

Most mortgages written today are sold to conduit companies, like Hutton Mortgage, which resell the loans or package them into pools and issue securities backed by the pools of loans.

Traditionally, the originator of the loans "services" them -- that is, collects the payments from the borrowers and passes the money on to the conduits, which then pay the investors.

Donald Glascoff, a lawyer for E.F. Hutton Group, said Hutton Mortgage still held $13.6 million in second, third and fourth mortgages it purchased from First American, although it had transferred the servicing contract to another company when it discovered the problems with First American this fall.

Hutton Mortgage also sold another $20 million in mortgages originated by First American in the form of participation certificates to four institutional investors.

Glascoff said the suit charges First American with civil fraud, racketeering and breach of contract. He said Hutton Mortgage believes, based on an investigation by Peat, Marwick, Mitchell & Co., that First American diverted funds collected from the mortgages to a subsidiary called M.H. Mortgage Co., allegedly controlled by Clott.