The government yesterday issued regulations prohibiting federally chartered savings and loan associations from refusing to make loans on houses merely because they are old or located in the inner city, a procedure called "redlining."

Many central city residents claim that savings and loans contribute to the decline of urban communities by either refusing to make loans in the inner city or consistently undervaluing the worth of the houses there.

The Federal Home Loan Bank Board also prohibited savings and loan associations from using appraisers known to undervalue homes merely because they are located in areas where the populations is changing racially or because they are old or in the inner city.

The board, which regulates all federally chartered savings and loan associations, also moved to toughen monitoring and enforcement of fair lending practices.

Savings and loan associations - which make the bulk of home mortagage loans in the United States - will be required to keep a list of all applications they receive for home loans and what decision is made on each application.

The so-called loan register will serve both as a monitoring device for S&L management and an enforcement tool for federal examiners who will use it "to flag potential discriminatory loan decisions by member institutions," the bank board said.

S&Ls will have to record in the loan register information about the area in which the house is located, the sex, age, and race of the applicants, and the terms of the loan itself.

The regulations were proposed last November at a White House press conference with board chairman Robert McKinney and Vice President Mondale.

McKinney said yesterday he would issue a set of sanctions next week that would apply to lending institutions that violate the new regulations.

He said the sanctions would range from requiring an S&L to notify a borrower who had been discriminated against to giving the borrower "redress" to public notices and restitution where a whole lending pattern by an S&L is questioned.

The U.S. League of Savings Associations, the largest industry trade group, said its member institutions do not redline or otherwise discriminate and that the new regulations would merely create "unnecessary and costly paperwork." This will raise the costs of doing business, and the increase will "inevitably have to be passed on to borrowers," the group said

The U.S. League also said that requiring institutions to report the race or sex of all applicants, "including those who do not want this information to be recorded, clearly violates the right of individual privacy."

The three-member bank board approved the regulations unanimously, although Republican member and former chairman Garth Marston said he had reservations about the effectiveness of the loan register, which requires S&Ls to keep 23 pieces of information about each application.

Marston suggested that it might not be useful in flagging unfair lending practices. He asked for a trial run using S&Ls identified as discriminatory by civil rights groups to see if the information required on the register does point regulators and examiners to abuses of fair lending practices.

The regulations take effect July 1, although certain parts, such as the loan register, do not take effect until Sept. 1.

The regulations also require:

S&L to adopt written loan under-writing standards that are available to the public.

S&Ls to inform borrowers of their right to file written loan applications, to "discourage prescreening of potential applicants."

Institutions to affirmatively seek out good loans from all sectors of the community.

McKinney said the new regulations do not require savings and loan associations to "make unsafe or unsound loans. We firmly believe that there are many loans to be made in urban areas and they can be made on a prudent basis."