State to Reopen Battered Mortgage Guarantee Unit

Cal-Mortgage, the state loan guarantee program that was shut down by a $167-million default last year, will reopen under stringent new guidelines aimed at blocking risky financial ventures, state officials announced Tuesday.

Among other rules, members of the program’s advisory loan committee are barred from taking on loan guarantee applicants as clients. In addition, people employed by companies receiving loan guarantees may not personally profit from the loan proceeds, and the applicants must contribute part of the cost of the project.

These and other guidelines were outlined Tuesday in a letter from Cal-Mortgage’s parent agency, the Office of Statewide Health Planning and Development, to Standard & Poor’s, the financial rating firm.

State officials said the guidelines were crafted to address problems with two Cal-Mortgage loan guarantees approved in December, 1990.

One, involving the Encino-based Triad Healthcare Inc., is responsible for the $167-million default. Triad has since sought federal bankruptcy protection. The second deal involved a Beverly Hills company, Community Adult Care Centers of America Inc. (CACCOA). It resulted in a loss of nearly $5 million by Cal-Mortgage and has spawned a civil suit by the attorney general’s office alleging fraud.

In both cases, a member of the program’s advisory loan committee, Vincent F. Forte, represented the applicants as broker on their loans, The Times has reported. His firm, Goldman Sachs & Co., netted $2.75 million in commissions from the transactions.

The applicants also had no equity in the deals. In the CACCOA case, the state’s lawsuit alleges that officers and business associates of the company pocketed loan proceeds that were supposed to be used for construction of new health care facilities.

Thomas McCaffery, assistant secretary of health and welfare, said the Triad and CACCOA problems were the consequence of “poor judgment calls” by previous Cal-Mortgage administrators and inadequate program safeguards.

The former director, Larry G. Meeks, has alleged that he was offered--and rejected--bribes by CACCOA’s chairman while the loan guarantee application was under review. The CACCOA official has denied wrongdoing.

Meeks also approved the deal even though CACCOA did not meet conditions recommended by the loan committee.

“We recognize that there were problems,” McCaffery said. “We are trying to make the changes now to put it on the right track because we do think that it is a good program.”

For 25 years, Cal-Mortgage has helped nonprofit health care companies obtain low-interest loans by backing the debt with the state treasury. Triad and CACCOA marred an otherwise successful record.

McCaffery said the program will give priority to health facility construction projects in underserved areas of the state, and will avoid deals of the size of Triad.