The same kind of risky real estate lending practices that led to costly bank and savings and loan failures in the Southwest are now inflicting painful and in some cases potentially fatal wounds on a number of Washington's real estate developers and lending institutions.

Until the area's commercial real estate market stopped in its tracks this year, local developers often received loans with no cash down, no loan payments required for two or three years, no collateral or no legal obligation to pay the debt if something went wrong, according to real estate records and executives involved in the Washington real estate market.

Real estate magnates including Conrad Cafritz and Dominick F. Antonelli Jr., and home builder NVR L.P. and developer Kettler and Scott -- all now endangered -- were among those who received high-risk, no money-down or no-collateral loans, and most every major Washington bank and thrift made them at one time or another.

Local developers frequently were able to borrow not only all the money needed to plan and build their office buildings, housing developments and other projects, but also enough to pay the interest on the loans during the construction period and operate their companies.

The loans -- which did not violate banking regulations -- were a product of the highly competitive environment among banks and savings and loans, according to industry experts, an environment that they said encouraged many developers to launch ventures that became unprofitable when the real estate market slumped.

Local banks are being forced now to set aside hundreds of millions of dollars to cover losses on these ventures, causing heavy losses for shareholders. Risky lending practices were a key factor in the collapse of National Bank of Washington last summer and have pushed several other local lenders to the brink of failure.

Government banking regulators for several years have warned that overly generous real estate loans were the direct cause of hundreds of costly bank and thrift failures around the country.

"Such loans were a prescription for disaster," veteran savings and loan regulator William K. Black told a congressional committee earlier this year. Now with the Office of Thrift Supervision in San Francisco, Black investigated several prominent Texas S&L failures as well as Lincoln Savings and Loan, where no-money-down financing and deferred payments were standard lending practices.

"Such loans are extraordinarily risky... . Such loans have no margin for error," warned Black.

Nevertheless, he added, "It was literally easier to get approval for a speculative $50 million {development} loan than a $50,000 home mortgage."

On a home mortgage, most lenders insist on a cash down payment of 10 percent or 20 percent of the value of the property. During the 1980s, many developers were able to obtain loans without making cash investments in their projects. Homeowners who fail to make mortgage payments can not only lose the house, but also can be sued by the lender and lose their other assets. Real estate developments, however, can be financed with so-called "non-recourse loans" that allow the lender to repossess the property but not to sue the borrower for any additional losses.

Slump Ended Practice The risky lending techniques detailed in Black's testimony occurred often in Washington and other East Coast cities until earlier this year, say banking regulators from the Office of Thrift Supervision in Washington, New York and Boston. Since then, the slumping real estate market caused lenders to cut off most new construction and development loans and to clamp down on the terms of loans.

Washington bank and thrift executives also competed aggressively for commercial real estate loans, said Christopher Beard, publisher of Turnarounds & Workouts, a Washington newsletter specializing in problem real estate. He said construction companies and real estate developers have long been the most important business customers for local banks, because the Washington region has few other capital-intensive industries that require big loans.

Details of real estate loans are often difficult to determine from public records, but bankruptcy filings and loan restructurings by several local developers have disclosed the terms of a number of transactions that illustrate risky practices cited by banking regulators:

A real estate development firm owned by NVR L.P., the McLean home builder, obtained $128 million in land loans for which the parent company was not legally responsible. When the home-building business faltered this summer, NVR defaulted on the loans, giving the land to the banks and thrifts that made the loans, leaving the lenders to bear any losses. NVR's owners could not be held responsible for the debt because the lenders had made non-recourse loans.

Among the approximately $1 billion borrowed by Washington real estate developer Conrad Cafritz were unsecured loans of $34.6 million lent by banks including Sovran, Signet, American Security, Crestar, Perpetual and National Bank of Washington. The unsecured loans typically were backed by Cafritz's personal guarantee rather than by claims against his extensive property holdings. As a result, these lenders lack a claim on Cafritz's buildings, and if he is forced to file for personal bankruptcy, the banks are not likely to collect as much as if their loans were secured by a mortgage on real estate.

To finance a $100 million housing development in Loudoun County, the Northern Virginia firm of Kettler and Scott borrowed not only the money to build the project, but also the money to pay interest on the loan for several years. The loan from Chevy Chase Federal Savings Bank provided what bankers call an "interest reserve," a pool of extra cash from which interest payments could be deducted. When the interest reserve ran out, Kettler and Scott was unable to make payments on its own, and Chevy Chase had to take over the project.

Developer Dominick F. Antonelli Jr. was able to get a $6 million unsecured personal line of credit from Riggs National Bank without putting up any of his property as collateral. Riggs and other lenders did not get mortgages on Antonelli's real estate holdings but instead accepted his personal guarantee on millions of dollars worth of loans. An attorney for Antonelli said that unless lenders give him more time to work out his problem loans, he might be forced into bankruptcy.

All Aboveboard None of these lending practices is unusual or improper, stress banking regulators and others familiar with real estate finance. They say these types of loans were standard lending practice.

Against the backdrop of worsening real estate problems, bankers are changing their ways.

"What we're seeing right now is a major change," said real estate lawyer James McNair. "The banks want money on the table for real estate loans."

"I think you'll see lenders moving away from those practices in the future," said Alexander Boyle, senior vice president of Chevy Chase Savings Bank. "There will be a tendency to require developers to pay more of the interest out of their own pocket. Greater upfront equity and perhaps a move toward greater personal guarantees are both likely to occur."

One banker -- who asked not to be quoted by name -- said it was not the nature of the loans but the decline of real estate prices that is responsible for the problems.

Many real estate professionals, however, say the losses would have been lower if developers had been required to risk more of their own money on their projects.

"If the lender's got you up against the wall and everything you own is at stake, you're going to do everything you can to work your way out of it. When you don't have anything to lose, you're more likely to walk" away from the debt, said J.E. Robert Jr., whose Alexandria firm is one of the nation's leading specialists in cleaning up failed real estate projects.

New Minimums In selling property from failed thrifts, the government now is demanding that buyers make a cash down payment of 15 percent -- the minimum that was required until lending rules were loosened by the Federal Home Loan Bank Board in the early 1980s.

The bank board -- which has since been abolished by Congress -- relaxed the rules over strenuous objections from bank examiners and other professional staff members, noted Al Dermody, a veteran regulator now with the OTS Dallas regional office. At the urging of the savings and loan industry, rules requiring 25 percent down payments on loans to buy land and 15 percent cash down on construction and commercial loans were changed to permit 100 percent financing.

"Not one of us thought it was a wonderful idea," said Dermody. "If the borrower wasn't on the hook, what did you have? Nothing."

Once commercial real estate lending regulations were loosened, he added, the competition for what looked like lucrative business led lenders to offer loans with no equity from the borrower and no legal recourse to collect the debt. "It was difficult to get recourse or equity if the guy can go down the street and get the loan from somebody else," Dermody said.