A Baltimore Circuit Court judge, saying there is "an absolute need" to reduce the Maryland state government's losses at Community Savings and Loan, slashed the interest rates on deposits at the weakened Bethesda thrift to 5 1/2 percent yesterday.

The action by Judge Joseph H.H. Kaplan came amid disclosures from mortgage industry experts that Community holds millions of dollars worth of unsecured second mortgages made by a Community affiliate called Equity Programs Investment Corp. (EPIC).

Community's holding of those unsecured mortgages could weaken the position of the Maryland Deposit Insurance Fund (MDIF), the state conservator for the thrift, as it attempts to recover money from scores of bankrupt EPIC-related partnerships, industry sources said. MDIF's claims would likely be secondary to those of all secured creditors, including holders of first and second mortgages.

Kaplan lowered the interest rates on Community's passbook, NOW and money market accounts, which had ranged between 8 and 10 percent, at the request of MDIF, the state government agency that also controls Old Court and Merritt Commercial saving and loan associations in Baltimore.

Kaplan's order took effect yesterday and does not apply to certificates of deposit, which will collect interest at their present rates until they mature. At maturity, the interest rate will be 5 1/2 percent.

"I see an absolute need to cut the losses to as little as possible," said Kaplan.

Kaplan's order came three weeks after a Montgomery County Circuit Court judge placed Community in state conservatorship and froze all deposits of its 30,000 account holders. That freeze followed EPIC's failure to make payments on more than $1 billion in mortgages and securities; more than 300 real estate partnerships connected to EPIC also filed for bankruptcy.

Kaplan said reducing the 8 to 10 percent interest on Community accounts would save MDIF about $1.1 million a month in interest payments.

Even with the lower rate, the monthly interest payments on Community accounts will run about $500,000, state officials said.

In a separate ruling, Kaplan allowed a special exemption to his earlier ban on withdrawals at Merritt.

Kaplan authorized the release of $5,000 to enable an elderly Baltimore woman to pay her nursing home bills, and an additional $2,600 per month so the woman could continue living at the facility. Kaplan said he will not entertain any similar requests for the next 60 days.

Kaplan's action on Community came in a week when experts in the national mortgage industry said the thrift held millions of dollars in unsecured EPIC mortgages.

In an interview this week with editors and reporters for The Washington Post, David O. Maxwell, the chairman of the Federal National Mortgage Association, which holds $102 million in EPIC mortgages, said Community has "a legitimate [but] not a secured claim" as a creditor of the 300 bankrupt EPIC-related partnerships.

Second mortgages held by Community were not secured, Maxwell said, because they were not recorded in local courthouses as required by law. Such a maneuver would have saved EPIC thousands of dollars in fees and taxes, industry experts said.

Daniel M. Lewis, an attorney for MDIF, said yesterday that several former EPIC employes told his staff that many second mortgages held by Community had not been filed in land record offices.

Earlier this month, when MDIF asked that Community be placed in conservatorship, it said in court papers that the thrift was virtually crippled by several EPIC investments, including $26.4 million in second mortgages to EPIC.

In a related development, MDIF said yesterday that the top three officers of Community have resigned from association and EPIC positions at the conservator's request.

Also yesterday, the president of Gibraltar Building and Loan Association of Annapolis said he had had no discussions regarding a purchase of his association by Mellon Bank of Pittsburgh. Reacting to a report in yesterday's Washington Post that said Mellon was interested in acquiring Gibraltar, Lawrence Goldstein said the only talks he has held with Mellon officials concerned the bank's possible purchase of some of the association's loans.

Goldstein also said he expects Gibraltar to win conditional approval for federal deposit insurance within two to three weeks.