A headline in yesterday's Business section incorrectly identified First American Mortgage Co. as a savings and loan association.
A federal judge yesterday continued a freeze on the assets of First American Mortgage Co., which collapsed last week in Baltimore, and put a $1,000-a-week limit on the personal spending of the firm's principal owner, Michael H. Clott.
E. F. Hutton & Co., the big brokerage firm, has accused Clott and the mortgage company of bilking it out of millions of dollars in interest and principal on mortgages initially made by First American and sold to an E. F. Hutton subsidiary in Little Rock.
Hutton, in a suit filed last Friday after First American closed its doors, charged that the mortgage firm did not inform Hutton that between 40 percent and 60 percent of the mortgages it sold the brokerage firm's subsidiary were delinquent or foreclosed.
Hutton also alleged that the mortgage company sold other customers loans it already had sold Hutton and that when borrowers repaid their loans First American did not forward the principal to Hutton but used the money to make regular payments on other loans, creating the illusion that they were being paid on time.
Hutton also claimed that Clott diverted to a company he controlled funds that were due Hutton.
Clott's lawyer, Andrew J. Graham said that Clott denies diverting funds owed Hutton.
Most of the loans made by First American were high-risk, high-rate second mortgages. Deputy Maryland Banking Commissioner Henry J. Bryson said First American Mortgage -- which is not related to Washington's First American Bankshares Inc. -- was not licensed to make second mortgages in Maryland.
But First American had subsidiaries in about 15 states and apparently most of the mortgages it sold the Hutton subsidiary were from southern states. The Hutton subsidiary is based in Little Rock.
Hutton bought about $64 million of mortgages from First American, keeping nearly $14 million of them for itself and selling the rest to institutional investors like savings and loan associations.
Graham said Clott, who did not appear in court before U.S. District Judge Alexander Harvey II yesterday, would give a deposition next Tuesday in the Hutton suit.
Clott dismissed employes of First American last Friday and top officers of the company resigned.
In another development, Rockwood Insurance Co. of Somerset, Pa., announced yesterday that it had issued insurance to First American Mortgage on mortgages made by the collapsed company. Rockwood said it could not quantify the amount of the credit insurance.
First American is reported to have made about $180 million of mortgages altogether.