There is a lot of discussion these days concerning the reasons and the blame for the failure of not only the Bank of New England {front page, Jan. 7} but of the general banking situation in the country. As a real estate developer, I believe much of the blame lies squarely in the lap of Congress.

The so-called tax reform act of 1986 effectively made investment in commercial and other income-producing real estate undesirable. Prior to this act, Congress encouraged growth in the real estate market by offering a variety of investment tax credits and accelerated depreciation. In response, investors made money available for the construction of new office buildings, the rehabilitation of urban areas and the preservation of historical structures. Relying on the good faith of the U.S. government, investors flooded into the real estate market, and loans were made.

However, with the passage of the tax law in 1986, Congress in effect reneged on its "contract" with the investing public and institutions. It eliminated the ability to offset passive losses against other income. It didn't matter if these losses were paper losses or cash losses, they could not be deducted against nonpassive income.

Congress made it undesirable for limited partners in projects to lend the project money if business deteriorated as it has today. If some of the partners lend money, they will have imputed interest income on which they must pay taxes, although they are unable to deduct the losses.

In fact, if a property is in trouble, the best thing for the limited partners to do is to dump the property before their basis goes negative. We find an absurd situation in which investors have lost all their investment but have to pay capital gains taxes upon foreclosure. No wonder the Federal Deposit Insurance Corp. Resolution Trust finds no market for its foreclosed properties.

If any Wall Street underwriter induced investment and changed the rules in the manner in which Congress did, he would be indicted. The net effect of the tax changes has probably reduced the economic value of property by 20 to 30 percent. Current economic conditions probably reduce the market value and marketability by another 20 percent. It is little wonder that the value of property has fallen below the mortgaged amount.

In an era of economic consolidation, it is unlikely that investors will purchase properties for long-term holdings unless the law is changed and there is an iron-clad guarantee that it will not be changed again. The question of whether the tax benefits should ever have been given is moot. There is little doubt that taking them away has been disastrous.

Congress should consider reinstating the original tax benefits for properties committed before passage of the act in 1986. This should promptly relieve a lot of pressure on the banking industry. It is questionable whether new construction should enjoy benefits to the same degree. However, the passive-loss provisions of the code should be eliminated along with the minimum alternative tax. Real estate should be treated like any other business.

AUSTIN A. HEATH Worcester, Mass.