The federal government has paid out $4 million to make good on an insolvent Florida thrift's loan, the proceeds of which went to a partnership involving President Bush's son Jeb and a business partner, officials said yesterday.

The Federal Deposit Insurance Corp. (FDIC) collected $505,000 from a partnership between Jeb Bush and Miami developer Armando Codina after an investor in one of their real estate deals defaulted on a $4.5 million loan from Broward Federal Savings and Loan in Sunrise, Fla.

But the government had to cover the remaining $4 million in debt along with numerous other bad Broward Federal loans in order to sell the thrift to another financial institution after it collapsed in December 1988, FDIC officials said. The total cost of paying off the loans is estimated at $285 million.

Alfred J.T. Byrne, general counsel for the FDIC, said the agency does not believe Bush or his business partner acted improperly or cost the government any money by their own actions. He said FDIC did not grant any preferential treatment to the Codina-Bush partnership and reached a fair settlement.

In an interview with the New York Times, which detailed the transactions yesterday, Bush, 37, the president's second-oldest son, said he was a "victim of circumstance. ... We have nothing to fear or hide about the transactions."

Jeb Bush's involvement in the Broward Federal bailout stems from back-to-back loans from the S&L to real estate investor J. Edward Houston and from Houston to the Codina-Bush partnership. Codina has the controlling interest in the partnership, according to Byrne.

On Feb. 1, 1985, Houston obtained a loan for $4.565 million from Broward Federal, securing it mainly with his personal guarantee. Byrne said the Houston loan was "illustrative of less than appropriate lending practices" at the thrift.

On the same day, a company headed by Houston lent the same amount to the Codina-Bush partnership to buy a five-story building in the middle of Miami's financial district, according to Byrne. It was unclear yesterday whether thrift executives knew the loan money was going to third parties or whether such a loan would violate federal banking regulations.

As collateral for the loan from Houston, the Codina-Bush partnership gave Houston a second mortgage on the building and pledged income from the property and a reserve fund.

The partnership was required to pay back the money to Houston, "only as, if and to the extent that the cash flow from the building was sufficient to support those payments," Byrne said. As of early this year, when it settled with the FDIC, the partnership had not been required to make any payments, he said.

Along with the Houston loan, the partnership took out a first mortgage of $7 million with an insurance company. The partnership paid $9 million for the building, then appraised at $9.5 million, and put the surplus loan money into improvements and a reserve fund.

In 1987, Houston defaulted on his loan to Broward Federal and the thrift sued both Houston and the Codina-Bush partnership, officials said. The government took over the institution the following year and became the holder of Houston's second mortgage on the building, Byrne said.

Houston himself had few recoverable assets, except the note from the partnership, Byrne said.

The FDIC rejected an offer from the Codina-Bush partnership to give up the building because reappraisals showed its value had fallen to $6 to $6.5 million, less than the first mortgage, he said. Instead of the building, the FDIC went after the reserve fund that the partnership set up with its loan monies.

Before the partnership settled with the FDIC, it spent $200,000 from the reserve fund to pay off delinquent real estate taxes.

Byrne said that California Federal Bank, which bought Broward Federal's assets and liabilities in 1988, approved the tax payments. But FDIC negotiators were unaware the payments until afterward, he said.

The agency "ultimately concurred," Bryne said, because if the taxes remained unpaid, the insurance company that held the first mortgage might foreclose, wiping out the FDIC's interest as the holder of the second mortgage.

The FDIC recovered about 10 cents on the dollar on Houston's loan, a rate that "our business people advised us is reasonable and expected, and higher than recoveries on some similar assets," Byrne said.

"The settlement was appropriate and reasonable under the circumstances," he said.

Under the settlement, Codina and Bush retained control of the office building. In interviews with the New York Times, the two men said they had costs in addition to the $505,000 paid to the FDIC, including legal fees and a tax liability of $1.3 million for the forgiven portion of their debt.

FDIC Chairman L. William Seidman said yesterday that he had ordered a review of the settlement and "our people reported back to me that it appeared to be entirely appropriate."

The president's third-oldest son, Neil Bush, 35, faces regulatory charges and an FDIC lawsuit in connection with Silverado Banking Savings and Loan in Denver, the failure of which was estimated to cost the federal government $1 billion.

The Office of Thrift Supervision has charged that Neil Bush violated conflict of interest rules while serving on Silverado's board of directors.

The FDIC alleged in a suit filed last month that Neil Bush and 10 other Silverado directors approved transactions that damaged the thrift. Neil Bush has repeatedly said he did nothing wrong.

Staff writer David Maraniss contributed to this report.