WASHINGTON -- The Senate Banking Committee approved legislation last week that would partially ease ban on the use of private-activity housing bonds in conjunction with the HOME housing affordability program.

Under the panel's bill, state and local governments would be permitted to count 25% of the value of their multifamily bond issuances in the contributions they make to the program that are eligible for federal matching funds.

The measure, which now goes to the full Senate, is part of a larger package needed to reauthorize HOME and several other federal housing programs that expire later this year.

The House Banking Committee, in approving its reauthorization bill last week, proposed making private-activity bonds a bigger part of the HOME program than the Senate panel is suggesting.

The House panel voted to allow the full value of both multifamily and mortgage bond issuances to be counted toward the HOME matching requirement.

The HOME program, created by a 1990 law, requires the federal government to match contributions that state and local governments make to low-income rental and home ownership projects. The law did not specify what financial instruments may be counted among the contributions eligible for federal matching funds.

Last year, the Department of Housing and Urban Development issued regulations stating that general obligation bonds were eligible for the match, but private-activity bonds were not.

HUD has argued that private activity bonds should not be considered a true contribution of a state or local goverment's resources because those bonds -- unlike general obligation bonds -- are repaid through project revenues.

But housing lobbyists say state and local issuers of private-activity housin bonds are taking a risk with their credit ratings that should be considered as a contribution to housing.

Also, private-activity bonds issued for housing must have an allocation under the $50 per capita state volume cap, lobbyists have said. If those bonds were allowed to count toward the match, those allocations would represent a diversion of bond authority under the cap to the HOME program that otherwise would not occur, they say.

During its drafting session, the Senate committee approved $2.1 billion for the HOME program in 1993, identical to the House committee's proposal. Last year, Congress approved $1.5 billion for the HOME program for fiscal 1992. Housing lobbyists have urged lawmakers to set the fiscal 1993 level at $3 billion.

The Senate committee also scrapped a proposal suggested earlier by its subcommittee on housing and urban affairs to do away with HUD's authority for reviewing the costs of some multifamily housing projects.

The reviews were designed to ensure that developers do not receive too much in federal subsidies when they build projects with the low-income housing tax credit and other federal housing aid. But industry officials have complained that the process is too cumbersome and complex, leading HUD to tone down its guidelines earlier this year.

This Senate subcommittee proposal would have eliminated the review process and given authority for monitoring the deals to the states. The committee bill still directs the states to review the deals, though it allows HUD to determine the review procedures and codifies the modified guidelines HUD published earlier this year.

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