The Housing and Urban Development Department is moving to kill an estimated 5,500 proposed housing units in 156 projects for the elderly and handicapped.

HUD, in effect, gave nonprofit groups that have had projects in the pipeline for two years or more just 10 days to notify HUD that they were ready to start construction in a month. If they didn't, the projects will be canceled.

Low-income housing associations claim that the HUD action is an illegal back-door attempt to rescind money and change housing policies without going through formal rule-making procedures. They say that if HUD denies funds to the projects, as it has promised, they will sue.

But HUD officials say they are merely attempting to eliminate programs that have been languishing too long in the planning stages, and they contend that the actions are within their legal authority. HUD officials are considering taking similar action against the much larger public housing program for low-income families.

The current controversy surrounds so-called Section 202 housing, a program that lends federal money to nonprofit groups to build projects to provide an alternative to putting the elderly and handicapped in institutions.

It is the only subsidized housing program the Reagan administration says it supports, and the only new construction the administration endorses in the fiscal 1983 budget.

The new policy was first outlined in a Jan. 21 telegram that HUD sent its regional offices telling them to stop granting extensions on overdue projects. An organization normally gets 18 months to begin construction from the time HUD money is set aside for a project.

During that time the group must complete a feasibility study, secure land, negotiate with contractors and get approval from local zoning and community development boards and other local and state groups. HUD must approve each step of the process before it will release the funds.

Because the nonprofit groups that run the Section 202 programs generally have less expertise than commercial developers, HUD regional offices in the past routinely have given them the six-month extensions that the rules provide. Additional extensions must come from HUD headquarters.

The telegram was followed by another on Feb. 8, sent to clarify the first, saying projects authorized in fiscal 1979 or before must begin construction by Feb. 19 or be canceled, unless the delay was HUD's fault. Field offices may grant four-month extensions for projects authorized in fiscal 1980 if the delay has been due solely to HUD efforts to set a new interest rate on its loans.

Philip Abrams, HUD's general deputy assistant secretary for housing, said, "Let me emphasize, we are supportive of the 202 program. We don't believe the private sector would provide enough of the proper housing for the frail elderly or the handicapped. But 5,500 units not being built is an unfulfilled promise. They're not housing the elderly."

HUD's new policy is part of an "overall philosophy of clearing the pipeline" to meet the administration's 1985 goal of 3.8 million units of federally assisted housing, according to Abrams. There are 3.4 million existing units and another 700,000 units in the pipeline. Thus HUD must find a way of eliminating 300,000 of those units.

"We think there are 300,000 that are not viable. Of course, only a small amount of those are in 202s," Abrams said. Most would come out of the subsidized low-income housing program, which President Reagan wants to eliminate, and public housing.

According to an analysis by the HUD staff, 33,339 units of housing for the elderly and handicapped are in the pipeline, but most are not past the new deadline. Of the 7,266 overdue units, HUD estimates that 5,500 units or 75 percent "are not going to be able to move forward," Abrams said. "There are 156 projects that appear to be doomed. We intend to notify the sponsors that we plan to take them off the books unless they" can begin construction promptly, he said. "But we expect to be reasonable."

Florence Roisman, an attorney with the National Housing Law Project, who successfully sued HUD over impoundment of housing funds during the Nixon administration, said, "HUD's action with respect to 202s is totally illegal on two grounds."

If HUD wants to change the rules, she said, then it has to follow the Administrative Procedures Act and go through rule-making procedures.The policy, she added, is directly contrary to the national housing goals established by Congress.

Jeanne P. Kinnard, housing specialist for the American Association of Homes for the Aging and organizer of the Ad Hoc Coalition for Housing for the Elderly, said several sponsors of endangered projects have talked of suing HUD, individually or collectively, after the notices go out that projects have been killed.

"It's very clearly part of what we believe may have to be done. Of course litigation is a measure of last resort," said Kinnard, noting the cost and time involved. "Every attempt is being made to try to get HUD to understand the ramifications of its action through other measures," particularly by appealing to Congress.

Gerald McMurray, staff director of the House subcommittee on housing and community development, said, "Section 202 is about the most popular project under our jurisdiction," and said subcommittee members would object to any wholesale cancellation of projects.

Other congressional aides involved with housing issues said many members resent it when HUD refuses to fund programs that Congress has approved, but they said Congress also sympathizes with the need to clean out the pipeline.

Low-income housing associations are aware of this. "I guess it could fall between the cracks," one association staffer sighed. "It's a relatively small program."