In the course of investigating the origins of Maryland's savings and loan crisis, Wilbur D. Preston Jr. asked an attorney for a Baltimore thrift why the institution's owners improperly had taken for themselves thousands of dollars in real estate title fees.

"Everybody did it," Preston quoted the lawyer as saying.

The remark, included in Preston's exhaustive 457-page analysis of the state's thrift crisis presented to the General Assembly Thursday, proved to be an exaggeration.

Yet Preston found that half of Maryland's savings and loan industry -- institutions that held$4 billion in depositors' money -- was infected by a "virus" of insider transactions, wildly speculative real estate ventures, excessive fee payments and flagrant violations of regulations.

The corruption in state-chartered savings and loans was so widespread, Preston told the General Assembly, that he could have investigated the industry "for the next several years and still not chase down every lead or inquiry that seemed appropriate."

Preston's report, the official chronicle of a crisis that has left more than 100,000 people with virtually no access to $1.2 billion in deposits, is a disturbingly rich lode of information about abuses at large and small associations alike.

While in the past eight months the public has become familiar with the excesses at such high-flying thrifts as Old Court, Merritt Commercial, First Maryland and Community savings and loans, Preston's report discloses for the first time similar, though less extensive problems at institutions previously thought to be trouble-free.

Associations singled out in Preston's investigation included: Sharon-Security, Fairfax and John Hanson savings and loans, all of which were granted protection by the Federal Savings and Loan Insurance Corp. (FSLIC) last fall, and Gibraltar Building and Loan Association, which is expected to win FSLIC protection with financial assistance from the state.

Sharon Savings and Loan of Baltimore and a subsidiary called Security Savings maintained unusually close ties to Old Court, the most flagrant violator of state lending laws. Sharon-Security, Preston found, lent former Old Court president Jeffrey A. Levitt and Levitt's businesses $14 million.

In one set of loans involving the purchase of 35 convenience stores in New York in 1983, Sharon-Security and Old Court engaged in "a conspiracy . . . to avoid conflict-of-interest laws and regulations," said the report. To circumvent regulations that generally prohibit "insider" loans to thrift officers, members of the Zell Hurwitz family, who controlled Sharon-Security, lent money to a Levitt-controlled company -- and Levitt did the reverse with Old Court funds, Preston found.

"On three separate occasions, the associations made same-day loans at sub-market 11 percent interest rates" to one another, said the report.

Those three transactions were based on appraisals consisting of one-page summaries with photographs prepared by an employe of an Old Court subsidiary called Bankers Appraisal Services Inc.

Hurwitz family members also received $12,577,136 worth of real estate loans from the association they controlled, said Preston, who noted that some of the loans were based on inflated land appraisals.

Preston's report mustered considerable evidence that the state's division of savings and loan associations, the chief regulator of the industry, knew of Sharon-Security's improper lending practices but "failed to take affirmative steps" to control the thrift. Nor did the Maryland Savings-Share Insurance Corp. (MSSIC), a private company that insured 102 state-chartered thrifts.

"Sharon and Security were not viewed by MSSIC as problem associations," said Preston's report.

Sharon-Security became the responsibility of the federal government Nov. 29, when the association became insured by FSLIC with a $5.2 million capital pledge from the Maryland government.

Similarly, the state pledged an $11.25 million note in September to enable John Hanson, a large Beltsville thrift, to obtain FSLIC protection.

However, Preston's report noted, John Hanson was "plagued by a conflict of interest," and the federal government insisted on the resignation of one director before approving FSLIC insurance. In the early 1980s, the director, Gerard Holcomb, had issued privately financed loans at interest rates exceeding 100 percent. Holcomb's private dealings were conducted from John Hanson offices.

Holcomb's private loans received widespread publicity in January 1982.

Holcomb also ran a subsidiary of the thrift called John Hanson Financial Services Inc. that, in turn, had a controlling interest in a real estate financing firm called First Founders Financial Corp.

First Founders' president was, and still is, Lawrence J. Hogan, the former county executive of Prince George's County and Holcomb's close ally in local Republican politics.

Although First Founders has generated negligible income since its founding in July 1984, Hogan received a $65,000-a-year salary as president, an amount that Preston found to be "excessive." Hogan defended his salary yesterday, saying that it was commensurate for "someone with my experience."

In a telephone interview yesterday, John Hanson President Jerry Whitlock said that the savings and loan decided late last year to "write off our interest" in First Founders if the subsidiary failed to generate income in December. Whitlock said he is awaiting the data on First Founders' performance.

Preston's report also faulted the operations of another large thrift, Fairfax Savings Association of Baltimore, which obtained federal insurance on the same day as John Hanson with the help of a $7.5 million pledge from the state.

Fairfax directors Malcolm Berman and Jack Stollof owned a title company that the thrift required all commercial real estate borrowers to use for settlement services. In fiscal year 1984, according to the report, Berman and Stollof received $900,000 in management fees from the firm, Maryland Title Company.

"The management fees from Maryland Title were both a conflict of interest and a corporate opportunity diverted from the association," said the report. Although Berman told Preston he had disclosed the relationship to state regulators, the head of the division of savings and loans said he had no recollection of the disclosure.

The president and majority owner of Gibraltar, an Annapolis thrift, had an almost identical arrangement with his title company. Laurence Goldstein's Arundel Title Corp. received more than $49,000 in title insurance fees between June 1984 and June 1985, the report said.

Gibraltar also agreed to swap $500,000 loans with Sharon-Security in 1982 at a below-market rate of 10 percent interest. The "cross-lending arrangement at sub-market rates was clearly a conspiracy to avoid insider lending limitations," said the report.

Gibraltar's rapid growth in recent years severely weakened the thrift's financial health, to the point where it had a negative worth of $8.3 million in April 1985.

"Gibraltar had no discernible underwriting standards or policy guidelines for commercial loans," according to Preston's report.

"Veteran federal examiners have advised us that they had never seen a group of associations concentrated in a geographic area that have been operated in such an unsafe and unsound way as those mentioned in this report," Preston said. "Maryland's savings and loan industry was on a collision course with disaster."