Subsidy Program for UC Faculty Hurt by Housing Plunge : Real estate: The university’s low-rate loans are meant to lure and keep star professors, but a small percentage of the deals have gone bad.

To students and colleagues, former UCLA professor M. Hashem Pesaran has impeccable credentials. He is a world-class economist, a respected author and editor of an academic journal about econometrics--the complex science of testing economic theory with statistics.

Only a few at the University of California, however, know that Pesaran’s personal financial reputation has a blemish: In October, Pesaran became the only professor to have his home repossessed under a little-known program that uses university money to finance faculty residences.

So far, 981 UC faculty members around the state have taken out more than $209 million in university-backed mortgages at below-market rates, a program begun nine years ago to lure and keep star faculty members during the heyday of California’s real estate boom.

But since real estate values have collapsed, those good intentions have boomeranged in a small number of cases, forcing the university to take back three of the homes--all formerly owned by UCLA professors, according to records obtained by The Times. UC officials are trying to peddle these homes at an expected loss of hundreds of thousands of dollars.

“We’re no more immune from this than any other lender,” said Steven Mathews, UC’s director of real estate management and loan programs.

In Pesaran’s view it is logical--not ironic--that the only home repossessed by the university was owned by an expert in economics.

“Why should that be ironic?” said the economist, now teaching at Cambridge University in England. “It just shows that I have done a proper rational calculation, in the sense that I came to the conclusion that . . . I could cut my losses short and move out of California altogether.”

UC administrators say their portfolio of problem properties is relatively small compared to what commercial banks are facing in Southern California. The three defaults at UCLA account for 0.4% of the 667 faculty loans currently outstanding, or a third of the 1.2% default rate for conventional lending institutions as of July.

The fact that all the defaults under the UC “mortgage origination program” happened at UCLA underscores the troubles in the Los Angeles-area real estate market.

Housing administrators at the Westwood campus are scrambling to unload 86 homes on hillside property in Westchester that UCLA developed under a separate program for faculty with a $42-million loan from First Interstate Bank. Campus officials hoped to have the subdivision--called “The Bluffs”--nearly sold out by now but have taken deposits on only five homes so far.

Under the systemwide special mortgage program, the university dips into its short-term investment fund and offers mortgages to professors, nominated by their departments and screened for credit-worthiness, at interest rates that have been 1% to 2% below commercial banks.

The first faculty default came in August, 1992, when UCLA sociology professors Michael Mann and Nicky Hart turned back the deed to their 3,700-square-foot, three-bedroom home on Amalfi Drive, according to records obtained under the state’s Public Records Act.

The couple had bought the home, a few blocks from the beach in Santa Monica Canyon, for $675,000 in May, 1988, the records show.

By the time Mann and Hart surrendered their deed more than four years later, however, they had accumulated a mortgage debt of $727,000 on property worth much less. Brad Erickson, UCLA’s associate director of real estate, said the sociologists asked to be relieved of the debt because their “volume of activity at UCLA was declining.”

University records show that the couple was being paid a combined annual salary of $166,000 as late as March--six months after they turned back their home. Since then, they have been on unpaid leave to conduct research in England. The couple declined to comment through a university spokesman.

In August, the university took back a second home from Jack Barchas, a noted neuropsychiatrist and associate dean at UCLA’s School of Medicine.

An expert in chemical regulators of the brain, Barchas used the UC mortgage to purchase his 2,130-square-foot house on Tavistock Ave. for $1 million in November, 1989, records show.

The English Tudor home, built in 1934 and featuring a vaulted ceiling and a small guest house, is thought to have been owned at one time by the late actor Bob Crane, of “Hogan’s Heroes” fame. Barchas built up $200,000 in equity in the house, records show.

Barchas asked to be relieved of the property after his wife died in July and he accepted an offer to become Department of Psychiatry chair at Cornell University’s Medical College in New York, Erickson said.

In a brief interview, Barchas said his giving back the house was a “perfectly proper transaction” and referred questions to his Los Angeles attorney, David R. Deutsch. Deutsch issued a statement Tuesday explaining that UCLA agreed to buy back the house “for an amount equal to the outstanding balance on the loans.”

UCLA officials now estimate the house is worth $700,000--about $100,000 less than the outstanding loans.

In both of these cases, Erickson said the university agreed to take back the deeds and not initiate foreclosure proceedings against the professors, who had already lost hundreds of thousands of dollars in equity and didn’t need to be “punished” with a mark on their credit history. Taking back deeds without foreclosing is common among lenders, especially since California law prohibits them from going after a homeowner’s other assets.

The Pesaran case did not end so amicably. Erickson said UC officials decided to foreclose on Pesaran because, unlike the other professors, he stopped making payments altogether on his Bel-Air home.

Pesaran--known for his 1988 book “The Limits to Rational Expectations”--purchased the 2,600-square-foot, three-bedroom home on Nalin Drive for $685,000 in 1989, records show.

But by the time he left UCLA in 1991 to teach at Cambridge, the value of his home had dropped considerably below the $590,000 in university loans he still owed.

Reached at Cambridge, where he conducts research and teaches graduate courses, Pesaran said in a telephone interview Tuesday that he found tenants for the home but could only charge enough rent to cover 70% of the $3,700 he owed the university each month. The shortfall, along with property taxes, left him with an annual $20,000 “negative.”

Pesaran said that, on the advice of his Glendale accountant, he stopped making mortgage payments altogether in January and asked university officials to renegotiate the loan. Selling the house and paying back UCLA wasn’t an option, he added, because he would have taken even more of a loss and had to pay a 6% broker’s fee to boot.

Other than the $150,000 in equity he lost in the house, Pesaran said, he was not concerned when the university foreclosed on the house Oct. 18. “The point is that it was my right to walk off and I did walk off,” he said.

“The fact that my credit record is not going to be very good in America, I’m sorry about it but it doesn’t affect me,” he said, adding that he intends to stay in England and mailed off his resignation to UCLA four weeks ago.

Erickson said Pesaran’s case shocked university officials. “It was very troubling for us,” he said. “The (economics) department wanted and we wanted to come to a settlement with this fellow (but) what he was asking for was a restructuring that no bank would agree to.”

The Bel-Air house, on which Pesaran had $590,000 in loans, is now estimated to be worth about $500,000.

UCLA has decided to hire a broker to put all three properties back on the market in late January.

“We felt it was in our best interest to spend a little money and time to paint them, spruce them up, fix up the landscaping and position them so we could get the best possible price,” Erickson said.