The state of Maryland plans to provide low-cost construction financing for federally insured rental housing projects that might otherwise be blocked by tight money and high interest rates.

Officials of the state's community development administration said yesterday that the state will reactivate a program under which it packages construction loans as tax-exempt notes and sells them to make low-interest financing avialable.

The program allows Maryland to lend construction money at half a point above the cost of its borrowing -- a rate expected to be in the range of 10.5 percent, as opposed to rates near 22 percent available from private lenders.

"The volume will be restricted only by staff time and the volume of construction loan notes that the national note market can absorb," said Roger Salen, assistant director for the development finance program. "We could do several thousand units in a year if there's a need for that volume."

The high cost of money has slowed down construction of rental housing further in areas, including suburban Washington, where such housing is already in short supply.

State financing will be available for Federal Housing Administration-insured projects with permanent financing provided through the Government National Mortgage Association. Projects eligible for financing will either include 20 percent rent subsidized units or those built in areas of Maryland targeted for federal urban development action grants.

Those are "urban areas that need the incentive of federal assistance to revitalize, such as some areas of Baltimore City or Mt. Rainier, Md.," said Salen.

Salen said he expects much of the volume will be in projects that include 20-percent-rent-subsidized units.

For such projects, developers will put up 10 percent of the cost of the project, with 97.5 percent of the balance financed during construction by the state. The mortgagee handling the project will supply the other 2.5 percent of the financing.

Normally developers need two types of loans to complete a project -- a short-term construction loan to build the project and a long-term loan for permanent financing. What the state will provide is short-term construction financing.

Salen said developers had asked the state to reinstitute the financing program last used four or five years ago.

The tax-exempt notes will be repayable from the permanent financing program of GNMA.

How much money is provided through the program "depends on need," he said.

"We could do $100 million, or $75 million, or $150 million, I can't say. There's so much interest in it," said Salen.