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Loans Target Moderate, Lower Incomes


WASHINGTON — You don't need much--or any--down payment cash. And you may not need the sort of credit history, complete with bank account balances and credit cards, that traditional home buyers typically have to show to get a mortgage.

Simple as they sound, these are the core concepts of a revolutionary change underway in American housing in 1999:

Huge national banks and mortgage companies are targeting a heretofore invisible segment of the home-buying market--moderate- and lower-income people who hold steady jobs, pay their rent on time but just can't seem to accumulate much spare money after paying for food, the kids, utilities and the like.

They are ordinary working folks--newly married couples; immigrant families from Latin America, Asia or Africa; households headed by a single parent; people who work multiple jobs to make ends meet.

On a monthly basis they earn decent money, but a big chunk of it goes to a landlord.


Consumers such as these are being courted as never before. Major financial institutions, including Bank of America, GE Capital Mortgage Insurance and Countrywide Home Loans believe that millions of people could qualify for--and handle--homeownership with just a little bending of the standard mortgage qualification rules.

The country's largest bank--Bank of America, the $618-billion giant produced by the merger last year of BankAmerica Corp. and Nationsbank--introduced earlier this year what it calls "credit flex" and "zero down" home loans in 35 states and the District of Columbia.

The credit flex plan tries to focus on the real-life financial situations faced by many households, especially those from ethnic and social backgrounds to which the American way of credit--borrow to the hilt--is foreign.

The credit flex plan completely dispenses with credit scores based on consumers' electronic credit files. As an alternative gauge of credit-worthiness, the loan officer instead will look at the applicants' rent payment history over the last year. If the payments are on time, applicants generally will pass the credit test.

Credit flex also takes what the bank describes as "undocumented" income into account.

For example, say you hold a regular job, and your employer withholds Social Security and taxes and submits a W-2 to the IRS. On its own, the income from that job isn't enough to qualify you to buy a house.

But you also earn extra money on weekends and some evenings by working at one or more other jobs--such as driving a taxi, landscaping, child care, etc.--for which you get paid in cash.

Under standard mortgage underwriting rules, your cash-only moonlighting income can't be counted to qualify you. But the credit flex plan will treat it like any other component of your monthly household income.

The plan also stretches debt-to-income ratios beyond the usual standard. Applicants can have total monthly debt-to-income ratios as high as 45%--well above the 33% to 38% norms in traditional underwriting.

Credit flex mortgages are 30-year fixed-rate loans at or close to prevailing market rates for regular loans. A minimum down payment of 3% is mandatory, but only one-third of that (1% of the loan amount) need come from the applicants' own funds. The rest can be a gift or loan from someone else or a grant from a nonprofit group or public agency.

Bank of America has a companion program to credit flex aimed at applicants with established good credit, moderate incomes but no down-payment cash.


It's called "zero down," and that's basically the equity it requires to purchase a new or resale home. Borrowers do have to meet credit-worthiness tests--using credit scores and files--and they do have to pay for certain closing costs.

But on a $100,000 loan, home buyers could move in after paying nothing down and about $2,000 in closing fees--several thousand dollars less than they'd pay with even a federally insured FHA low-down payment mortgage.

Both credit flex and zero down are limited to buyers whose incomes do not exceed 80% of the median for the metropolitan area.

In some parts of the country, that can be surprisingly high: In the Washington, D.C., area, for instance, that's $63,120; in Chicago, it's $51,040; San Francisco, $57,920; and Minneapolis, $50,880.

Bank of America is not the only large national lender getting ready to plunge into the no-cash-down home-buying arena.

Countrywide Home Loans, teaming with GE Capital Mortgage Insurance and the National Assn. of Housing Partnerships, offers what it calls "CashSaver-plus" for households with good credit.

Countrywide's CashSaver plan features zero down and minimal closing costs--about $3,000 on a $100,000 loan. Countrywide will allow generous help toward the closing costs from relatives and others and will offer expanded debt-to-income ratios. Maximum loan amount is $240,000, and there are no income cut-off limits by market area.

For more information on the Countrywide-GE plan, call (800) 570-9888. For Bank of America's programs, call (888) 815-2724.

Distributed by the Washington Post Writers Group.

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