WASHINGTON -- The Department of Housing and Urban Development will partially ease rules barring the use of tax-exempt bonds to help finance projects under the housing affordability law enacted last year, to HUD officials said yesterday.

But some municipal lobbyists said the department's decision to allow general obligation bonds to be eligible for the program does not go far enough, and they said they will continue to urge HUD to permit private-activity bonds to be used in the program as well.

The 1990 National Affordable Housing Act, commonly referred to as the HOME program, requires the federal government to match contributions that state and local governments make to rental housing and home ownership programs for low-income people.

HUD sparked criticism earlier this year when it proposed regulations for the program that would not allow various types of financial instruments, including tax-exempt bonds, to be counted among the contributions eligible for federal matching funds.

Part of HUD's concern was that tax-exempt bonds, being free from federal taxation, could be viewed as federal financing, which states and localities may not count toward the match under the new housing law.

HUD Secretary Jack Kemp told reporters yesterday after appearing at a House Ways and Means sub-committee hearing on enterprise zones that the department is aware of the concerns of state and local governments, and HUD "will be very flexible" on what it counts toward the match.

Mr. Kemp was accompanied by Thomas M. Humbert, HUD deputy assistant secretary for policy development, who said that the flexibility would extend in part to the use of tax-exempt bonds. The department will consider GO bonds issued for a housing project where revenues are permanently committed to the HOME program as being eligible for federal matching funds, Mr. Humbert said.

HUD's reasoning for singling out GO bonds appears to be that revenue bonds or private-activity bonds, because they are secured by income streams from housing projects, would not represent a strong financial commitment on the part of states and localities in the same way as GO bonds.

The department's willingness to allow general obligation bonds to be eligible for the program, while helpful, is only half a loaf, municipal lobbyists said.

"We feel very strongly that, while this is a step in the right direction, the statute doesn't require a permanent contribution, so that any form of bond, either taxable or tax-exempt, ought to be an eligible match," said John C. Murphy, executive director of the Association of Local Housing Finance Agencies.

"If they're talking about flexibility, you ought to be able to use revenue bonds, mortgage bonds, and multifamily housing bonds," said a municipal lobbyist who asked not to be identified.

"Particularly the latter two are set aside for low- and moderate-income housing," the lobbyist said. "Some people treat it like it's not skin off your back, but getting it -- because it's under the cap -- and dedicating it to that use is skin off your back."

The lobbyist was referring to the fact that mortgage bonds and multifamily housing bonds cannot be issued unless the issuer obtains an allocation under the private-activity bond volume cap, which is the greater of $50 per person or $150 million per state each year.

Lobbyists said they would continue to press HUD to go further in allowing bonds to be eligible for the match and would also press Congress on the matter.

But Mr. Humbert's statement coincides with remarks made in May by W. Donald Campbell, the staff director of the Senate Banking, Housing and Urban Affairs Committee. Mr. Campbell said HUD went too far in completely barring tax-exempt bonds from being counted toward the match, but he was also leery in allowing all types of bonds to be counted. He said he expected lawmakers to look favorably on allowing general obligation bonds to be counted toward the match.

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