For two years now, some Capitol Hill lawmakers have been pushing Congress to raise the loan limit for mortgages insured by the Federal Housing Administration and last year succeeded in increasing the limit to $124,875.

But a housing advocacy group representing the poor said that such efforts are misguided at a time when the group believes low-end borrowers are the victims of discriminatory lending practices.

Buyers of modestly priced homes, according to the Chicago-based group National People's Action, often must pay excessive fees in the form of loan discount points to secure small mortgages compared with those charged for bigger loans.

Affluent borrowers, on the other hand, pay proportionately fewer points in obtaining larger loans of up to the $124,875 limit, the group said.

Discount points, each equal to 1 percent of the loan amount, are collected by lenders to subsidize the interest rate charged for a loan.

The Mortgage Bankers Association of America (MBA), whose members make 80 percent of all FHA home loans, said that differential pricing makes sense because it costs the same amount of money -- about $900 to $1,200 -- to complete a loan, regardless of the size of the loan.

"It is purely a matter of economics," said Robert M. O'Toole, an MBA senior staff vice president.

In a four-city study conducted in May by a research affiliate of National People's Action, the National Training and Information Center found that all but one of the lenders surveyed charged additional fees for mortgages less than $50,000.

The lenders surveyed represented the five largest FHA lenders in Chicago, Cleveland, Philadelphia and Milwaukee.

Penalty points on small loans help fuel the practice of "redlining," said Tom Schraw, housing coordinator for the survey group. Some lenders effectively draw a red line around certain neighborhoods, usually racially mixed communities, and refuse to make loans there.

Differential pricing, Schraw said, also hurts borrowers in rural areas where home prices are lower and lenders scarce.

Schraw said he finds it particularly upsetting that Congress is considering keeping the temporary $124,875 FHA loan limit in place or raising it still higher while ignoring the problems of those who need the government-insured program the most.

"If you are going to keep the FHA loan limit at $125,000, you ought to guarantee that people who need $30,000 to $40,000 loans can get them," Schraw said.

In one of the worst examples uncovered by the survey, Margaretten Mortgage Co., the largest FHA lender in Philadelphia, charged one discount point for mortgages of more than $50,000 but six points on a $24,000 loan. That translates into $500 out of pocket for the $50,000 loan borrower and $1,440 for the $24,000 borrower, the group said.

Edward Blau, president and chief administrative officer for Margaretten, said the survey "facts are correct, but the innuendo that people charging more for little loans are gouging is not. It is just an economic reality ... that almost anything in a little package costs more."

Rep. Tom Ridge (R-Pa.) is attempting to prohibit the tiered pricing practice through a legislative proposal he has titled the Neighborhood Lenders Accountability Act.

Ridge is trying to attach the measure to a major housing bill now before the House Banking Committee.

The MBA's O'Toole called the measure "unfortunate" in that it advocates the use of "price controls.

"It seems that there are some pricing schemes that are difficult to explain, but I'm not sure it is necessary to pass a federal law" to handle the problem, he said.

Schraw said he rejects the MBA's argument that differential pricing is necessary in order to cover the lender's loan origination costs.

Many lenders, Schraw said, are adding such excessive fees to small loans that those borrowers end up paying far more than they would for a medium-size loan.

Schraw also argued that lender fee schedules are arbitrarily drawn. His group's survey, he noted, found that the origination costs on the same $19,000 loan ranged from a low of $90 to a high of $1,235.

Schraw said many lenders look upon mortgage origination as a loss leader in order to acquire the servicing rights to loans.

Lenders earn a servicing fee for collecting and disbursing monthly payments and managing the borrower's escrow account.

The National Association of Realtors agrees in concept that tiered pricing practices are creating problems, said Stephen Driesler, chief lobbyist for the organization.

"Our Realtors in both the central cities and the rural areas have been expressing for some time their frustration at the inability to get FHA financing {for their home-buying customers} in lower loan amounts under $40,000," he said.

However, Driesler said that the Ridge approach lacks a mechanism that will force lenders to abandon tiered pricing in that it relies on the Department of Housing and Urban Development for enforcement.

While predicting that the Ridge amendment will become part of the House housing bill, Driesler said his organization will try to beef up the initiative at a later stage in the legislative process.

The advocacy group's study also found that nine of the 20 lenders were imposing minimum loan amounts on FHA mortgages, a practice made illegal in 1987 by legislation also sponsored by Ridge.

Late last month, the MBA sent a letter to its members reminding them that they are forbidden by law from refusing to make small mortgages.

O'Toole characterized the letter as educational, but faulted HUD for failing to enforce the law.