Consumer organizations attacked renegotiable rate mortgages (RRMs) yesterday as a poor deal for borrowers and one that could push the cost of home buying out of the reach of 85 percent to 90 percent of American families.

The RRM holder pays a steady monthly mortgage fee, amortized on a 30-year basis, for a period of between three and five years. At the end of that time, the mortgage can be renewed for another three to five years, provided payments are current, but at the prevailing interest rate.

The rate can rise as much as five percent over the life of the mortgage; it also can drop by an unlimited amount. This type of mortgage is expected to widely supplant the fixed-rate mortgage, long the average homeowner's best anti-inflation weapon.

The RRM has been proposed by the Federal Home Loan Bank Board as necessary to improve the earnings of the savings and loan industry. It is the other side of the coin to the banking reform bill which gradually is eliminating interest rate ceilings. It also gives small savers a better break. That legislation is due to come up on the House floor today.

"It would be unfortunate indeed if the burden of protecting the soundness of savings institutions, borne for so long by small savers, should now be shifted over to mortgage borrowers," said Rep. Benjamin Rosenthal (D-N.Y.) yesterday.

Whereas banking reform and flexible interest rates have been affected through an exhaustive legislative process, flexible mortgages are being put into effect by regulation with little public airing, consumer witnesses told Rosenthal's committee.

Most of them deplored the lack of consumer safeguards in the RRM proposal such as the guaranteed right of a borrower to elect a standard fixed-rate mortgage instead of being obliged by the lender to take a renegotiable loan.

When the Bank Board first approved variable rate mortgages -- in these the interest rate goes up or down a little each year instead of remaining fixed for a given period -- the freedom to choose was included. When variables proved unsalable because lenders had to offer a choice of a standard loan and had to reveal the "worst case," or how high the variable payments could go, the bank board bowed to industry pressure to cut these consumer safeguards. g

Among those calling for a guaranteed choice were White House consumer adviser Esther Peterson, Housing and Urban Development Secretary Moon Landrieu, Consumers Union and Gale Cincotta, chairwoman of National Peoples Action in Chicago.

Cincotta calculated 85 to 90 percent of U.S. families, whose median income is $21,000 a year, would be excluded from buying a $50,000 house if they had RRMs which allowed interest rates to climb as much as five percent above current 16 percent levels.

Other criticisms of the Bank Board's proposal center on the index by which rates would be renegotiated. It would allow a thrift institution to set a renewal rate based on "then current market rates on similar loans," a method critics feel would lead to abuses.