A former Richmond mortgage banker, described by federal prosecutors as "the brains" behind a $500 million fraud scheme, was arrested in Los Angeles yesterday and charged with conspiring to swindle hundreds of individual and institutional investors.

Eric M. Freedlander, former president of Freedlander Inc., once the nation's fourth-largest second-mortgage lender, was named in an 83-count federal indictment out of Richmond charging him with filing false reports to government agencies, wire fraud, mail fraud and other felonies.

U.S. Attorney Henry E. Hudson said yesterday that Freedlander "was undoubtedly the brains behind" a scam that cost large institutional investors $70 million in losses, including $20 million that was invested on behalf of taxpayers by the Washington-based Federal National Mortgage Association (Fannie Mae).

Hudson also noted that several savings and loans were defrauded, as well as over 400 private investors, "many of them people who had placed their entire individual retirement accounts with the Freedlander company."

Russell C. Williams, Freedlander's attorney, said yesterday that his client denies any wrongdoing and "is very interested in coming back to Richmond to defend himself against all this."

Williams said his client had offered to voluntarily return to Richmond to face charges and described yesterday's arrest as "grandstanding" by the U.S. Attorney's office.

Williams said Freedlander has been working for the past year as a mortgage banker in Los Angeles and described his client as the "rainmaker" of Freedlander Inc. who "spent his time going out opening new offices, making new business." Freedlander Inc. had 88 offices in 33 states before it filed for bankruptcy in 1988.

Freedlander, 43, is the last target of a three-year investigation into Freedlander Inc. conducted by the U.S. Attorney's office, the FBI and the Internal Revenue Service.

Eve A. Freedlander, Eric's mother, has pleaded guilty to duping many of the smaller investors and was sentenced in November to 10 years in prison. Benjamin L. Freedlander, Eric's brother, admitted that he altered company records to hide the fraud and was subsequently sentenced to one year in prison.

The case presented by prosecutors describes a scheme that began in the early 1980s and quickly created a self-perpetuating spiral of debt as the Freedlanders bilked more and more investors to pay off previous debts and fuel a lavish lifestyle, high salaries and corporate planes.

The Freedlanders allegedly made the bulk of their money selling portfolios of bad loans to unsuspecting investment institutions, according to the indictment.

Fannie Mae bought over $215 million in second mortgages from Freedlander from 1982 to 1985, the indictment says.

Freedlander Inc. included delinquent loans in the portfolios sold to Fannie Mae and concealed the bad loans by manipulating the payment records on the loans, court papers show.

When confronted by Fannie Mae auditors in 1986, Freedlander Inc. claimed that the "understatement of delinquency rates was the result of a recently discovered computer problem."