A report that the government's loan guarantee program for low-income and minority homebuyers discriminates against minority buyers came under fire Wednesday from Democrats at a House Banking subcommittee hearing.

The report by the Chicago Area Fair Housing Alliance found that minority homebuyers are steered to the Department of Housing and Urban Development's FHA program even when they qualify for other loans, and that the agency fails to provide proper forbearance to borrowers that default.

Rep. Joseph P. Kennedy 2d, D. Mass., charged that the report was being used to further the Republicans' small-government agenda. The report comes as the Clinton administration aggressively lobbies to expand the program by about 33% by allowing it to insure loans up $227,000.

"What I'm really concerned about," Mr. Kennedy said, "is that we're using the issue of fair housing to undercut the FHA."

The Democratic subcommittee members complained that the housing agency was not allowed to testify and that the hearing's conclusions were foregone.

Mr. Kennedy attacked the argument often made by Republicans that private players could better serve the low income and minority market. He said, "The idea that somehow or other Fannie (Mae) and Freddie (Mac) are going to move into this marketplace is utter hogwash."

The report's author, Calvin Bradford, expressed general support for the program. "In the majority markets," he said, "FHA is the American dream machine."

But in minority markets, the program contributes to "a separate and unequal" housing system, said John R. Petruzak, executive director of the South Suburban Housing Center, Homewood, Ill., a member of the Fair Housing Alliance.

Mr. Petruzak said the study found that white prospective homeowners routinely get more choices, while prospective buyers who are black are steered to the FHA program, even when they are a bit better qualified.

After the hearing, HUD issued a statement that said, "To criticize FHA is to take aim at the wrong target. The real problem lies with discrimination by conventional lenders."

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