When Winston V. Morrow, the president of Ticor, an insurance firm based in Los Angeles, got off the telephone with Federal National Mortgage Association Chairman David O. Maxwell in October, one source described his feelings as "stark terror."

The reason? Maxwell told Morrow that the mortgage-finance giant would announce the next day that it would no longer do business with Ticor Title, the country's largest title insurance company. It was a virtual threat, as another source put it, to "destroy" Ticor.

Maxwell never carried through on the implied threat, but his call had the desired effect: Within days, Ticor executives were willing to participate in intensive negotiations over a rescue plan for the crippled real estate empire set up by Equity Programs Investment Corp. The eventual participation of Ticor's mortgage-insurance subsidiary was critical to the ultimate success of the plan.

The incident provides a vivid illustration of the underlying fear of disaster that impelled a host of disparate parties -- including more than 100 savings and loans, several large financial institutions, three large insurance companies, and the state of Maryland -- to work together to prop up the $1.4 billion EPIC operation.

More than 350 EPIC investment partnerships defaulted on $1.4 billion of mortgage debt last fall, triggering a massive bankruptcy and forcing Maryland to take over EPIC and its affiliate, Community Savings & Loan of Bethesda. In one of the worst real estate failures ever, dozens of savings and loans, thousands of small investors and the state of Maryland were threatened with millions of dollars in losses.

Normally working out a bankruptcy of EPIC's size would take two to three years to complete. But the parties involved have pieced together what is essentially a consentual plan of reorganization in barely eight months.

They did this mostly, sources say, out of fear of the alternative -- a mass fire sale of the EPIC properties. Such a "meltdown," as it was referred to by lawyers on the case, could have had catastrophic repercussions in the nation's mortgage markets.

"To have had a free-for-all with everybody running to the courthouse to see who could get their hands on their property first would have been a disaster," said Maxwell, who chaired an influential committee of lenders who helped put the bailout plan together.

"I don't know how the mortgage insurance industry could have survived that all-out meltdown," he added.

As a result of the fears, the prospect of massive losses appears to have been averted. A plan for the orderly sale of 20,000 EPIC houses was approved by the bankruptcy court in Alexandria last April and implemented in early May. It is expected to generate enough proceeds to pay off the loans, a good chunk of money owed the state of Maryland and perhaps even some of the investors who sank money into the EPIC partnerships.

One lawyer intimately involved with EPIC suggested that negotiators putting together the plan were faced with a dilemma familiar to nuclear weapons negotiators: If you pushed too hard, you could usher in disaster.

"Everybody had to cooperate. Each constituency had its own ability to instill fear in the others," this source said. "What you never knew is how far the other guy was prepared to go."

The EPIC partnerships were the centerpiece of a complex interrelated group of companies that bought single-family houses -- ultimately numbering 20,000 -- as tax shelters for investors. The partnerships financed the purchases by issuing mortgage debt. But as time went by, the rental stream generated by the properties was inadequate to meet payments on the debt.

EPIC's affiliate, Community Savings & Loan of Bethesda, advanced millions of dollars to keep the partnerships afloat in their last months. But when the thrift itself got in trouble as a result of the Maryland savings and loan crisis last year, EPIC quickly unraveled.

Numerous parties were involved in the subsequent negotiations, each with its own points of leverage. The state of Maryland, seeking the recovery of millions of assets lost at Community, had control of a number of key EPIC affiliates, as well as 5,000 EPIC properties that did not file for bankruptcy. Lawyers for the bankrupt EPIC partnerhips had the exclusive right, under U.S. bankruptcy law, to file a plan of reorganization.

But leadership was assumed early in the bankruptcy by an ad hoc committee of creditors chaired by Maxwell and including representatives of Salomon Bros., PSFS, and seven other institutions that held EPIC loans. This group floated an early outline of a plan of reorganization on which the final plan was patterned.

These institutions took the leadership role, insiders say, because they had the most to lose. Some had embarrassingly large exposures at EPIC, producer of some of the riskiest loan instruments ever seen in the mortgage finance industry. Fannie Mae held $102 million of EPIC loans, while PSFS, the huge Philadelphia thrift, was on the hook for $217 million.

Perhaps more important, the health and credibility of the fast-growing market for mortgage-backed securities -- in which both Salomon and Fannie Mae have a heavy stake -- was threatened by EPIC's collapse. Roughly $1 billion worth of EPIC mortgages were packaged together into these types of securities and sold to thrifts and other institutions.

Throughout the negotiations, the committee played a major role keeping things on track and, at times, wielding their own market clout on behalf of the plan, according to parties on all sides.

A prime example of its efforts was the committee's strong-arm tactics to get Ticor's mortgage-insurance subsidiary to participate in the plan. Not only did Maxwell threaten Morrow to induce Ticor to negotiate more seriously, but Salomon Bros. played a major behind-the-scenes role in helping the mortgage company work out its financial problems, sources say.

The ultimate participation of TMIC, which insured mortgages on more than 40 percent of the EPIC property, was one of the key components of the plan, as was the particpation of the other mortgage companies.

Morrow of Ticor would not characterize his conversations with Maxwell, but he quipped, "Frankly, he doesn't get any high marks for lovableness."

Probably the most significant role the committee played was keeping alive a sense that progress was being made toward solving the EPIC problem. Throughout months of negotiations, the committee released a steady stream of press releases, announcing various agreements and milestones -- thus ensuring that key parties continued to cooperate on the plan.

"The lenders needed to know that they were sitting still for a reason," said William J. Perlstein, a lawyer for the committee.

Without signs of progress, there was the very real danger that dozens of other savings and loans would seek to remove the properties underlying their own loans from bankruptcy court protection and start foreclosing on them.

Once such a process began, the incentive to other lenders to remove their own properties would likely be irresistable -- and the way would be pointed to a meltdown. The snowballing rush to the court house would have destroyed any hope of a negotiated settlement to the EPIC problem, according to officials with the committee.

"If everybody started taking their properties out and dumping them . . . you would have had a situation that is just beyond belief. The bottom would fall out of the market," said Nando DiFilippo, senior vice president at Baltimore Federal Financial, another committee member.

Maxwell said he and other officials personally contacted the chief executives of several other savings and loans to persuade them to reconsider breaking ranks on a number of occasions. He was able to ultilize what he terms "moral blackmail" to make sure they did not upset the delicate negotiations.

"There was going to be a lot of thrift institutions badly hurt by EPIC, and people were going to know who upset the match sticks," Maxwell recalled telling S&Ls that were entertaining thoughts of bolting. "It was just using whatever tools we had to keep things on track to the end."