Officially the issue is interstate branching of savings and loan associations in the Washington area. Unofficially the issue is competition, as District thrift seek to invade the territory of mainly small suburban institutions.

Earlier this month, the Maryland Savings and Loan League, in a memorandum to the Federal Home Loan Bank Board, which suggested the branching, leveled a broadside against inner city lenders. Yesterday it was the turn of the Metropolitan Washington Savings and Loan League to shoot back.

The Marylanders told the regulators the urbanites should not be allowed into their area beacause they would then lend even less money in the inner city. Last year just over one-third of the D.C. thrifts' mortgage loans were made in the Nation's Capital; two thirds were in the suburbs.

Despite its name, the Metropolitan Washington Savings and Loan League is dominated by District S&Ls, 16 to 4. The 16 did their own survey of Marylanders' lending practices and found that of 1l federally or FSLIC insured thrift insititutions with offices in the Washington suburbs, only tow effectively inllude the District in their lending territory. Two out of 9 state insured thrifts include the District and only one out of 20 Virginia S&Ls includes the city.*tThe Community Reinvestment Act of 1977 requires financial institutions to serve entire communities, poor as well as rich neighbourhoods. So, in effect, said one Metropolitan Leaguer, the Maryland S&Ls are red-lining the District. And that should give the D.C. based thrifts all the more reason to branch into the suburbs.

The Metropolitan League reasons that more suburban branches would mean more total deposits and hence a higher dollar amount for the District, even if the percentage of loans made in the inner city were to slip a bit.

The maryland League believes that percentage would slip a lot. It argues, therefore that the D.C. based associations should instead stay home and increase the percentage there.

Bank Board chairman Robert H. McKinney said estimates by his staff indicate that interstate branching within the Washington area could result in a $500 million increase in deposits in D.c. thrifts over the next five years, with an estimated $125 million in mortgage financing resulting in the city. The Maryland League disputes these figures but has been unable to get McKinney to make the staff analyses public.

Asked yesterday if other metropolitan areas should be entitled to the same rights as Washington, Thomas J. Owen, president of Perpetual Federal Savints and Loan, responded, "We asked (the bank board) for an exception; we have no position on the rest of the country." (S&Ls opposed to branching fear Washington is only the first step toward nationwide branches.)

The Metropolitan League's support of the bank board's action arrives at the end of the comment period, which expires Monday. But the controversy shows no signs of abating. On Monday the Metropolitan Washington Board of Trade will hold an open meeting at the Federal Home Loan Bank Board.

The guest speakers are McKinney, who suggested branching in this area, and Mayor Marion Barry, who has pledged to improve housing in the District. The Board of Trade has gone on record with an endorsement of area wide economic development without explicitly endorsing branching. CAPTION: Picture, Thomas J. Owen, left, of Perpetual, William Blumenauer Jr. of Columbia and Ralph Childs Jr., President of the league. By Frank Johnston-The Washington Post