New Jersey's subsidized housing program has become the target of the first audit that the federal Department of Housing and Urban Development has conducted of a state housing finance agency.

The audit was ordered soon after a top Hud official met privately with the central figure in a far-reaching criminal investigation of the state's Housing Finance Agency.

The HFA's dealings with the man, wealthy developer James Canino of Englewood, N.J., sparked state and federal probes of the agency in February that have led to the ouster of its former director and the resignation of White House patronage consultant Daniel Horgan last August. r

Despite the criminal probe -- and discovery that Canino and his partner Alvin Raphael had withdrawn $1.8 million from a federally subsidized high-rise apartment building for senior citizens -- Canino was able to arrange a private meeting Aug. 2 with HUD Assistant Secretary Lawrence B. Simmons.

Simmons told the Trenton, N.J., Times he agreed to the meeting at the request of Rep. John M. Murphy (D-N.Y.), who reportedly is under federal scrutiny for his campaign and personal finances in an unrelated investigation. Murphy could not be reached for comment on the visit.

Asked about the meeting, Simons, recalled that Canino told him that he planned to sue the New Jersey HFA over to current handling of federal subsidy money for the high-rise project. But Simons said that he did not realize that Canino is under criminal investigation for his handling of the same federal subsidies from June 1976 until August 1978.

Within a week of the Simons meeting, a HUD aide wrote the HFA, demanding to know how it planned to resolve its dispute with Canino.

At the same time, Simons asked the HUD inspector general to send auditors to New Jersey to check out HFA subsidy procedures.

"We do see a need to start monitoring the state agencies' performance and we want to do that this year," Simmons said. "I might add that one of the first places we're going is New Jersey."

But Inspector General Charles Dempsey conceded the timing of the audit is unusual because the Department of Justice and the New Jersey attorney general are investigating the HFA and its dealings with Canino and Raphael.

"Normally, where the situation is under control, we would not go in," Dempsey said. He deviated from that policy in New Jersey, he said, because Simons asked him to. And in light of the scope of the state and federal investigations, the audit Simons requested was unusally narrow, Assistant Inspector General John Yazurlo said.

Dempsey and Yazurlo said they would widen the audit if it were neccessary.

The ordering of the HUD audit may affect the outcome of a lawsuit Canino filed against HFA soon after the Simons meeting. The suit is aimed at removing the administration of Canino's subsidy funds from HFA so that HUD would funnel them directly to him.

Canino and Raphael are represented by former New Jersey Democratic chairman James P. Dugan, a lawyer, who in August launched one of two state groups raising campaign funds for Sen. Edward M. Kennedy (D-Mass.). Dugan, Canino and Raphael are building an office building that will house Dugan's law firm, which handles most of Canino and Raphael's legal work.

Dan Horgan was a key Dugan ally in New Jersey Democratic politics. He was Dugan's executive director of the state party in 1973 and was second in command at the HFA's parent agency from 1974 until mid-1976. Horgan and Dugan reportedly helped engineer the selection of William L. Johnston of Hudson County to the post of HFA executive director in 1974, Johnston resigned under fire last April.

Horgan ran Jimmy Carter's successful 1976 presidental campaign in Ohio and became executive director of the Democratic National Committee in early 1978. Horgan had been a White House patronage consultant for four days in August when he was linked to the growing HFA scandal and quit.

The tangled web of HFA political connections also features the head of New Jersey's AFL-CIO, Charles Marciante. Marciante helped engineer the sale of a large union-owned project in 1977 and two months later showed up with a share in another HFA project. Among his partners in that project were a state highway commissioner, a former Democratic state senator, and the son of the Essex County Democratic chairman.

Subsidizing projects financed through the HFA can produce huge profits for developers who sell off tax shelter shares the projects generate.

In the current market, the tax shelter sale alone can produce a profit of up to $500,000 on a $4 million apartment project, which can also produce construction and management fees for the developer.

Other highlights of the New Jersey probe that have been disclosed so far include reports that:

The HFA employe responsible for overseeing Canino's and Raphael's projects for the agency is under investigation for allegedly receiving a series of expensive gifts, vacations and cash from companies controlled by Raphael.

The independent accountant Canino and Raphael hired to audit the books of two HEA projects actually owned a share of one of them. When the link was disclosed, an ethics investigation was done of the accountant firm in New York where it is located.