Community Savings & Loan Inc. in Bethesda said yesterday that its chief real estate subsidiary is delinquent on payments to investors holding as much as $1 billion worth of mortgage-backed securities and that it could be in "a technical condition of default . . . by the end of this month."

The securities in question were issued by Equity Programs Investment Corp. (EPIC) of Falls Church, which sold limited partnership interests in thousands of single-family homes to investors across the country. EPIC financed the transactions by selling hundreds of millions of dollars worth of mortgage-backed securities to investors.

EPIC is a subsidiary of Community, but sources familiar with the company said the much larger EPIC dominates the affairs of the savings and loan.

Community Savings is one of the institutions whose deposits were insured by the Maryland Savings-Share Insurance Corp. and remains the largest Washington-area savings institution that has not yet received either conditional or final approval for federal deposit insurance.

The state has ordered all savings institutions with assets of more than $40 million to obtain federal insurance by the end of the year. Like several other former MSSIC members that have not yet qualified for federal coverage, Community is under a $1,000-per-month limit on withdrawals by its 30,000 depositors.

The Federal Home Loan Bank Board earlier this week told Community that it cannot get federal deposit insurance until it disposes of its real estate syndication operations.

Clayton McCuistion, president of Community, said in a statement to the Dow Jones News Service that the institution intends to avoid default on its obligations and is "working diligently" to sell EPIC.

It was not clear last night what impact a default by EPIC would have on Community, but EPIC's total mortgage liabilities of $1.3 billion dwarf the savings and loan's assets of $443 million. In a statement issued late yesterday, the S&L said "Community has no default of any kind."

McCuistion said his institution is attempting to "recapitalize and restructure" itself, "so as a temporary step we are holding everything in place," even though payments on the securities are due.

"Whether that delinquency will turn into default depends on the timing of the divestiture," he said.

A Maryland savings and loan official said Community had been pumping as much as $18 million a month into EPIC, but those funds have been cut off by the Maryland Deposit Insurance Fund, the state agency that picked up the pieces of MSSIC.

It could not be determined yesterday who owns the mortgage-backed securities. Securities of this sort, which entitle the holder to a share of the payments of principal and interest on a pool of mortgages, are commonly sold in large denominations to institutions or institutional investors such as pension funds and insurance companies.

Nor could it be learned how much EPIC was supposed to have paid investors.

Community and EPIC executives refused to discuss their problems with reporters yesterday, but later they issued a second statement. It said: "EPIC is working with its investment banker and other interested parties, including the mortgage insurance industry, to accomplish the divestiture as quickly and as orderly as possible. Once an agreement is in place, normal operations for EPIC and the partnerships are expected to resume.

"The holders of the first mortgage loans (or mortgage pass-through securities) are fully secured and we do not expect there to be any loss of principal or interest unless this develops into a panic situation requiring a 'fire sale' of the homes."

Many of the mortgages issued by EPIC are insured by Mortgage Guaranty Insurance Corp. of Milwaukee and Ticor Mortgage Insurance Co. of Los Angeles, two of the nation's largest issuers of private mortgage insurance.

Ticor did not return a reporter's telephone call, but an official of MGIC confirmed that the company is an insurer of "many mortgages and some pools" for EPIC. He put MGIC's total exposure at $60 million to $70 million, although only about 20 percent of that falls directly on the company. Responsibility for the remainder falls on other companies through reinsurance agreements, he said.

The MGIC official emphasized that the EPIC policies represent only one-half of 1 percent of the company's total exposure, and even a complete collapse by EPIC would not endanger MGIC's financial strength or claims-paying ability.

Since its founding 10 years ago by Northern Virginian Tom Billman, EPIC has grown to own through its partnerships some 20,000 single-family homes, which the company valued in a statement yesterday at $1.5 billion.

EPIC's original business was to buy model homes from builders and then lease them back. Over the years, it began acquiring large numbers of new houses from builders who were having trouble selling them. EPIC was able to acquire homes at below-market prices, industry sources said. It then could mortgage the properties for more than the purchase price and pull out cash.

EPIC then sold limited partnership interests in the houses to investors who rented them out, these sources said. The investors received tax benefits from their rental housing and expected eventually to receive capital gains through appreciation.

"Originally Wall Street was not involved in real estate syndication. Tom was one of the first people publicly marketing real estate lim-ited partnerships. He developed a network of stock brokers all across the country and had offices in cities where they sold investments," said one Northern Virginia builder.

"When real estate limited partnerships became something stock brokers deal with, Tom was already in place. He took off like crazy," the builder said.

As time went by, other sources said, real estate values failed to appreciate as much as expected. Rents on the houses, meanwhile, often fell short of covering mortgage payments and operating costs. In addition, many of EPIC's houses are in the Sun Belt, where overbuilding has swamped the rental market with vacant houses, condominiums and apartments, making it difficult to rent the properties.

These factors created cash-flow problems for EPIC, the sources said, and made it difficult to sell new partnerships.

Also, according to the former EPIC official, partnerships were sold for four-year terms, and some investors began to press for sale of their properties rather than extend the investment.

An official of another Maryland S&L called EPIC's system "a legitimate enterprise, but they are unable to develop new product on the market. Once the machine stopped, it threw off their calculations for funding their long-term debt through mortgage-backed securities."

Mortgage-backed securities are a relatively new but rapidly growing financial device that provides money for housing in much the same way the stock and bond markets finance other businesses. There are a number of variations, but commonly they work this way: A number of mortgages are assembled into a pool under the care of a trustee or agent. An underwriter sells investors securities based on the pool. In most cases, both the underlying mortgages and the pool itself are insured -- in the case of FHA and VA loans, by the government, and in the case of private issues, by private mortgage insurers.

Borrowers make payments to the lenders, who pass them through to the pool's agent, who in turn passes them along to the security owners.

In Annapolis and Baltimore, meanwhile, state officials who are still trying to steer the state through its original savings and loan crisis were monitoring the EPIC situation, but they said they were not concerned that it would exacerbate the overall thrift situation.

"The governor, like all state officials involved in the solution effort, is watching the situation involving Community and all other savings and loans very closely," said Lou Panos, press spokesman for Gov. Harry Hughes. Panos said officials of the Maryland Deposit Insurance Fund, the state entity now insuring those institutions still lacking federal coverage, "are working to help Community get federal insurance , just as they are with everyone else. Almost every association has its distinct problems."

Francis X. Pugh, MDIF's counsel, said he is "hopeful" that Community will be able to sell off its EPIC subsidiary, which he said would be "a major step toward qualifying for federal insurance."

Hughes was scheduled to leave this weekend for a two-week vacation at his Delaware beach house. Panos said there were no plans to delay his vacation.

Despite the official confidence in state government, other sources close to the savings and loan industry suggested that EPIC's problems could affect the three-month-old effort to return the industry to normal.

Staff writers Molly Moore and Caroline E. Mayer also contributed to this story.