UPDATE / KEMP AT HUD : Agency Seeks to Change Focus From Scandal to Aiding Poor : At first, the secretary battled waste and corruption. Now he is pushing a plan to increase housing options.

A year ago, HUD became a three-letter word for scandal as congressional investigators disclosed systematic political favoritism in the awarding of low-income housing contracts when Samuel R. Pierce Jr. headed the federal agency.

Now, under self-styled “bleeding-heart conservative” Jack Kemp, HUD is trying to recover its reputation and live up to its true mission as the Department of Housing and Urban Development.

While chafing under budget constraints, Kemp has persuaded President Bush to propose an innovative program that would combine federal funds, new tax breaks for development in big-city slums, and matching money from state and local governments to increase housing options for the poor and homeless.

It got nowhere last year because lawmakers focused on the continuing revelations of lax management during the Ronald Reagan Administration, six-figure fees to Republican consultants, and waste of HUD funds earmarked for luxury buildings, golf courses and swimming pools.

During his early months in office, Kemp concentrated almost exclusively on what he called cleaning out the “swamp” at HUD and assembling a team of top department officials he said were selected without regard for political credentials.

Slapping a table for emphasis, the shirt-sleeved Cabinet officer said in a recent interview: “One thing I’ve tried to do is to get this place depoliticized and get the political influence peddlers out of HUD’s programs.” Most observers believe he has accomplished that goal.

When a HUD reform bill was adopted without opposition in the closing days of the last Congress, it cleared the way for a new housing program that is being assembled with bipartisan support in the House Banking, Finance and Urban Affairs Committee.

“I predict that by the end of 1990 there will be a Rose Garden ceremony at which President Bush will sign a bill that will have at its epicenter the major components advanced by the President,” Kemp said in an interview.

Even without new legislation, Kemp has canceled a wasteful program intended to help elderly citizens and dropped a controversial system of coinsurance for HUD housing that led to billions of dollars in defaulted loans.

Kemp has placed heavy emphasis on spreading the idea--and the practice--of resident management of public housing. Although only a few score of the 13,000 public housing projects have moved in that direction, HUD is confident that the concept is sound and eventually could lead to ownership of the projects by the tenants.

Dealing with the problem of the homeless, Kemp acknowledged that progress is slower than he would like. But he asserted that President Bush’s proposal to tie shelter to other programs that deal with job training, child care, substance abuse and mental health care mark a significant breakthrough.

Anna Kandratas, assistant HUD secretary for community planning and development, said a third of the homeless are mentally ill, and an equal number have alcohol or drug problems that should be treated.

Kemp has made a difference at HUD in another way. His outgoing personality contrasts with the reclusive Pierce, who was nicknamed “Silent Sam.”

The new HUD boss has turned up the lights in dim hallways, replaced dull murals with dramatic scenes of Washington landmarks and even managed to bring tasty food to the government cafeteria. His handshaking tours of the vast HUD building have become legendary.

“Symbols are important,” Kemp said. “But the ultimate test is whether we can get a bill through Congress.”