First, Washington Federal Savings Bank and now Chevy Chase Federal Savings Bank have come up with innovative yet practical approaches to dealing with some problem real estate loans that plague the savings and loan industry. The remedies employed by both institutions have potential downsides, to be sure. Both appear to warrant serious consideration by regulators and other lenders, nonetheless, as ways of handling a fair number of nonperforming loans -- those loans that are not paying interest.

Both S&Ls, faced possibly with initiating foreclosure proceedings against real estate developers, have put in place some fairly creative alternatives designed not only to ensure the viability of the projects involved but also to guard against negative consequences for segments of the area's economy. The circumstances differ, but the net results are quite similar.

As reported by The Washington Post, Kettler & Scott, a Northern Virginia development firm burdened by heavy debt, has relinquished ownership of two large developments -- being built as planned communities in Loudoun County -- to Chevy Chase. The transfer of deed in lieu of foreclosure allows Kettler & Scott to complete the projects for a fee while being relieved of the debt to Chevy Chase and possibly averting bankruptcy.

Earlier, Washington Federal also opted to become the owner of a residential project under construction rather than initiate foreclosure proceedings and launch a difficult search for buyers in a soft real estate market. Forced by a dubious regulatory requirement to call a loan on the project, Washington Federal simply took it over and hired the developer to complete it.

"We had a developer come in for a $9 million land acquisition and development loan," William F. Sinclair, Washington Federal's president, said in an interview three months ago. "Now the loan has come due. I had to call the loan because my 'loans-to-one-borrower' {limit} is $3 million," said Sinclair, referring to the 1989 S&L rule that restricts the percentage of a thrift's loans that it can make to a single borrower.

"The developer needs money to complete the houses, but I have to call his loan. He will take action against me because he's got a legal contract. His statement to me was, 'What are you going to do with the 100 lots I give you in a foreclosure?' I'm going to have to hire him to complete the project," Sinclair explained. And so he did.

There's no great mystery or complex management strategy involved in either of those two situations. Executives at the two S&Ls merely applied common-sense solutions to problem loans that might have provoked sterner action from other lenders. Taking the foreclosure route could have adversely affected the institutions, developers, construction workers and others. Executives at Chevy Chase and Washington Federal have minimized any losses associated with the projects, while demonstrating the value of creativity and flexibility in addressing a problem faced by scores of S&Ls.

Certainly, the Chevy Chase and Washington Federal examples can't be duplicated in every instance. They are models, however, that should be considered in the context of what's best in the long run for the principals as well as taxpayers and a community's economy. Regulators obviously support the move by Chevy Chase. More lenders ought to be encouraged to do the same wherever practical.

Had Chevy Chase elected to foreclose on Kettler & Scott's Cascades development on the Potomac River, the developer might have been forced to file for bankruptcy and work would have stopped on construction in progress. Builders holding contracts to construct 1,500 houses would have been caught in a squeeze and dozens of construction workers would have been laid off. In the meantime, the 100 or more homeowners in the development would have seen the value of their property plummet.

In a foreclosure, observed Sinclair, "Not only do you have to take back the asset, which becomes a nonperforming loan, you have the plumbers, the painters and carpenters out of work. You increase the rolls of the unemployed. As long as you've got an honest, hard-working developer, you go through a friendly foreclosure. These are good projects where they're selling homes."

And that's the key: viable projects that continue to produce income. That's why it's doubly important for regulators to become more flexible in their enforcement of rules that sometimes cause lenders to act too hastily in foreclosing on real estate projects or in shutting off credit to borrowers temporarily unable to repay loans. Lenders, by the same token, can help prevent more shocks to the economy if only they, too, would learn to be a bit more flexible in their dealings with real estate borrowers.

"It doesn't do any good for a builder to try to protect his interest in a hostile situation by declaring bankruptcy," said Alexander R.M. Boyle, Chevy Chase's vice chairman. "This way, the developer, the lender, homeowners and workers benefit. It's just a win-win situation for everyone."

There could be a downside for lenders who take on too many debt-ridden projects, however. As real estate owners rather than lenders, S&Ls run the risk of substantially increasing their capital requirements as a percentage of risk-based assets. Direct investments in real estate carry a much higher regulatory-risk weight (200 percent or more) than, say, government securities (20 percent).

Boyle concedes the capital requirements are a little higher for lenders as real estate owners but believes the deed-in-lieu-of-foreclosure arrangement is worth it. Besides, he noted, S&Ls have up to five years to dispose of real estate they own.

Given a choice between owning viable real estate projects and seeing them through to completion and destroying the value of an asset and disrupting people's lives, you're darn right it's worth it.