Low-income families will have access to a new source of money for hard-to-come-by downpayments under a promising pilot lending program that, if successful, could bolster local nonprofit housing groups' efforts to spur home ownership.

Under the experiment, home buyers would be eligible for 15-year second mortgages of up to $166,800 to cover their downpayment and closing costs.

The loans would be purchased by Neighborhood Housing Services of America, a national nonprofit corporation that acts as a secondary market for community development financing. Then, they would be pooled together and resold to Fannie Mae, the huge government-chartered institution which is the backbone of housing finance.

"This is a very big deal," said NHSA President and CEO Mary Lee Widener.

"I think we are on the threshold of breaking through to the secondary market for affordable downpayment assistance. If groups really start to make use of this opportunity, it opens up a virtually unlimited flow of activity through us and ultimately others."

NHSA is part of NeighborWorks, a network of more than 230 community-based nonprofit housing and community development organizations.

The $16 million pilot will be tested in "multiple sites" throughout the country.

Initially, the program will be operated in conjunction with the Ventura County (Calif.) Community Development Corp. But it will be expanded "as quickly as we can," said Richard Hayes, acting vice president for community partners at Fannie Mae.

Fannie Mae and its sister company, Freddie Mac, keep funds flowing to housing by purchasing loans from local lenders and packaging them into securities for sale to investors worldwide.

Hayes said his company is considering several other locations. But Widener said eight local community groups already "have been identified and are ready to go."

She would not reveal their locations, but did say that Orange County, Calif., is "likely" to be the next test site and that Chicago could be another.

"If the Chicago (Neighborhood Housing Service) wants to be one of the pilot sites, they've got it, I can guarantee you that," she said.

Chicago is the home of State Farm Bank, which was "instrumental" in creating the model on which the program is based, Widener explained. "If they had not done the work, we wouldn't have had a solid program to discuss with Fannie Mae."

The success of the pilot rests on the ability of local community groups to meet Fannie Mae's requirements, which include providing home buyer counseling, both before and after the purchase, and the ability to work through the company's automated underwriting system.

"We know there's a huge demand. The question is, can we demonstrate feasibility?" said Hayes.

But Federal Reserve Board Governor Edward Gramlich thinks local housing groups will jump at the opportunity.

"An open-ended source of funds for downpayment assistance loans will energize local organizations to promote home ownership is ways they otherwise could not," said Gramlich, who also is chairman of the Neighborhood Reinvestment Corp., a national nonprofit intermediary created by Congress in 1978 to support and expand the revitalization of lower-income communities throughout America.

Downpayment-assistance loans are available in many locales but at rates that are unaffordable to most low-income buyers. But under the Fannie Mae pilot, according to Hayes, the second mortgages would be at rates "similar to or perhaps even a little less than" that of the primary funding.

To bring costs down to that level, local groups will have to tap into housing subsidy funds, according to Widener. But if they are successful, she said, they could "double their housing activity in the first couple of years."

Widener said the 230 nonprofit housing and community development organizations that make up the NeighborWorks network now manage about $65 million in first and second mortgages a year, which works out to about 1,300 loans.

"This is something we're very excited about," said Fannie Mae's Hayes. "We think this will expand the use of downpayment assistance, which is very important to community groups everywhere."

Although second mortgages can be as large as $166,800 under the pilot, the combined loan amount of the first and second liens cannot exceed $333,700, Fannie Mae's statutory purchase limit.

The unusually large second mortgage will enable borrowers to avoid private mortgage insurance, which is required by almost all lenders of borrowers who make less than a 20 percent downpayment.

The costly insurance is paid for by the home buyer but protects only the lender in the event that the purchaser fails to make his monthly payments as promised.