Investigators try to clean up scandal-ridden thrifts. Savings-and-loans - those quiet storefront offices where millions of Americans have obtained their home mortgages - are fighting a wave of `kamikaze banking' - and of outright fraud.

Fraud, mismanagement, and risky speculation have reached ``epidemic proportions'' in the savings-and-loan industry in the United States, and now government law enforcement agencies are cracking down. The industry, which used to make its money by extending loans to home buyers, has been flooded with ``high rollers,'' as one banker puts it - speculators who buy a lending institution to raise money for everything from investments in risky real estate projects to Arabian-horse farms.

They often live lavish life styles, and sometimes their largess extends to Capitol Hill, as in the case of one thrift that donated its yacht services to congressmen giving fund-raising parties. (See story, Page 18.)

Eventually, such ``kamikaze banking,'' as Federal Reserve chief Paul Volcker calls it, must collapse, federal investigators say. Three years ago, a congressional study concluded that fraud and mismanagement were the key factors in 25 to 35 percent of the thrift failures; the figure is thought to be above 50 percent today.

The industry, with the help of the Federal Bureau of Investigation, is going through a housecleaning. But the country will likely pay the price for the unbridled, unregulated lending spree - in the form of a wave of thrift failures - for some time to come.

``We may be seeing fewer unscrupulous people getting into the business,'' says Peter Barash, an aide on the House Government Operations Committee, which has just completed a study of banking fraud. ``But there's still a ripple effect. We haven't seen the peak of the problem.''

Some 80 percent of the nation's savings-and-loans are profitable, an improvement over the last few years. But the other 20 percent keep regulators up at night with worry.

Because thrift institutions tend to be closely linked - farming out loans to one another, for example - the failure of one can cause serious problems at others.

Today, there are nearly 400 thrifts, out of a total of about 3,200, that are on the brink: That is, they would be closed if the Federal Savings and Loan Insurance Corporation could afford to do it.

But right now the FSLIC, which insures nearly $900 billion worth of deposits in savings-and-loans, is insolvent.

This month Congress agreed on a plan to allow an $8.5 billion infusion into the insurance fund. But most believe that will hardly cover future losses by the industry, which are expected to reach $50 billion in the next five years.

Many people are thus convinced that one of the best ways to stem the drain on the industry is to ferret out mismanagement.

At a hearing last month, Rep. Doug Barnard Jr. (D) of Georgia, chairman of the House Subcommittee on Commerce, Consumer, and Monetary Affairs, warned, ``If [the] government and private sector fail to take speedy and dramatic action against unscrupulous operators in the vulnerable thrift industry, an undercapitalized FSLIC fund may give way to a nonexistent thrift industry itself.''

Congress plans to hold more hearings on thrift mismanagement later this summer.

The thrifts' troubles began in the early 1980s, when interest rates shot up. Thrifts had to pay high rates to attract deposits; but the income they were getting in - older mortgage loans, for example - were payments on low, fixed-interest rates.

This shortfall ``pushed thrifts close to the lip of insolvency,'' says Stuart Greenbaum, a banking professor at Northwestern University.

Congress, concerned that many people would bail out of the industry, decided to add incentives to bring in new people and money.

In 1982 it passed the Garn-St Germain Act, which allowed thrifts to engage in all sorts of new activity, like commercial lending - including junk-bond financing of takeovers - and real estate development, even direct investment (that is, partial ownership) in various ventures. Many creative financiers would get an ownership position in ``service corporations,'' which would then have interests in fast-food restaurants, race tracks, and so on.

Deregulation let thrifts try to solve their economic problems in ways that Congress did not foresee.

``It put the S&L,'' Dr. Greenbaum says, ``into the position of a gambler down to his last dollar, looking for the biggest risk possible'' in order to win big and cover his losses.

At the same time, Congress loosened the restrictions for ownership to attract new people. Before, there had to be at least 400 stockholders. The new regulations let a single person - who was often scantily screened by regulators - buy up 100 percent of the stock.

``You'd come under more scrutiny if you were applying for a home mortgage than if you were trying to buy a savings-and-loan,'' one banking expert notes.

The screening process has since been tightened.

The result, says Walter McAllister, chairman of San Antonio Savings, was gross misuse of the thrift - a ripe pot of money that was, after all, insured by the government through the FSLIC.

``Instead of becoming a public trust,'' he says, ``[thrifts] tended to become personal fiefdoms.'' He says California and Texas, in particular, made more charters available, which is a major reason those two states are more beset by problems today.

Worrisome patterns began to emerge. San Marino Savings and Loan Association in Tustin, Calif., which was liquidated in 1984, embodies three of the most common, according to an ongoing suit by FSLIC and others who are familiar with the case.

The first was a voracious appetite for more assets, more deposits, and for more loans.

Beginning in 1981, San Marino ballooned its assets nearly twentyfold - from $24 million to $841 million in 3 years. To do this, officers made high-risk but supposedly high-paying loans, often in real estate.

In an effort to grow, management neglected to make a careful appraisal of its borrowers - a common failing among fast-track thrifts. In particular, it lent $193 million to developers Jack Bona and Frank Domingues for 17 condominium conversions in California and Texas.

Their appraiser (San Marino did not consult an outside appraiser) said the properties were worth $243 million, but the subsequent appraisals by the Federal Home Loan Bank Board, which regulates the thrift industry, put the value at only $110 million. When the property conversions fell through and San Mario foreclosed, it lost more than $70 million.

Meanwhile, the FSLIC alleges that Mr. Bona and Mr. Domingues walked away with $35 million to $50 million in profits.

Another pattern is the domino effect among thrifts.

San Marino didn't carry the Bona-Domingues loan itself, but sold it to eight other thrifts. It's still unclear how severe the damage will be to those thrifts. But it is clear that the failure of one financial institution can cause much trouble at another: On a larger scale, the failure of Penn Square in 1982 led to the run on Continental Illinois two years later.

A third pattern is how the same people move from one institution to another.

While Bono and Domingues were getting their loans from San Marino, they acquired South Bay Savings & Loan in Orange County, Calif. The FSLIC claims they used South Bay as a funding base to do the same type of ``sham'' condominium conversions, and closed the thrift in March 1986. FSLIC is considering suing Bono and Domingues for the $5 million it lost through the South Bay insolvency.

As jarring as these patterns may be to the FSLIC or to customers of failed thrifts, they had not garnerned much attention from the law enforcement community. But the sheer sizes of the losses made a difference.

Bank fraud (which includes thrifts) is now the No. 1 priority for the FBI's white-collar crime investigators, alongside government fraud, says Anthony Adamski, chief of the financial crimes unit at the FBI. The agency, which is working with the Justice Department and financial regulators, is focusing on institutions in California, Texas, Oklahoma, Kansas, and Louisiana.

But there are some difficulties. Thrift regulators, for example, at the Federal Home Loan Bank Board take an ``unfortunate'' interpretation of the Right to Financial Privacy Act, Mr. Adamski says, often making FBI or other investigators go before a grand jury to ask for financial records. That can take weeks.

So now the FBI is using more characteristic methods to build their cases: not paper trails, which are hard to explain to a jury, but body recordings, getting witnesses (insiders) to cooperate, ``techniques we use with organized crime,'' Adamski says.

Also, the past scares - runs on thrifts in Ohio and Maryland, for example - have made it easier for the bank board and FSLIC to tighten rules. Now almost all thrifts belong to FSLIC, having found private insurance too risky. This makes them easier to control. Federal laws on screening new thrift owners, as well as on net worth and growth requirements, apply to many more thrifts today. Sustained health for the thrift industry will take more than just nabbing the unsafe operators. Higher interest rates and a drop in real estate prices could send the industry into a tailspin. Most analysts think that even without a catastrophe, hundreds will ultimately be closed or merged.

But for now, the crackdown brings a little satisfaction. Notes Mr. McAllister at San Antonio Savings, ``Those of us who consider ourselves responsible members of the industry would like nothing better than to see a few of these guys put in jail.''