Counsel first-time home buyers, toss in flexible underwriting, low down payments, financing assistance and you've got a landmark home buying program that can help more low- and moderate-income people make the leap from renting to owning.

That's just what the California NeighborWorks Organizations has spearheaded for some first-time home buyers in California, where "affordability" has become a household buzzword.

"We already have programs like these in place and they are wonderful for our buyers," says Sandra Holte, a real estate agent with the Park Co./GMAC in Fargo, ND.

"It prepares the first time home buyer for what to look for and expect as well as give them "free" money. Many of these classes are taught by the lenders themselves in conjunction with Realtors. The classes here are not only are free, but many give the potential buyer a certification letter that enables them to qualify for all the different lender programs available - both local and other," Holte added.

Under the California pilot program in Orange County, qualifying families earning up to 140 percent of the area median income can combine an affordable 30-year fixed-rate first mortgage and a minimum 3 percent down payment with a below-market second mortgage from California Housing Loan Insurance Fund (CaHLIF). CaHLIF will insure the first mortgage and the down payment second needn't be repaid until the house is sold.

Families earning up to 80 percent of their area's median income can also receive as much as $2,500 towards closing through a grant from California Bank & Trust. Borrowers need to contribute one percent of the purchase price from their own personal funds towards either the down payment or closing costs.

"This announcement means a family with just $2,000 in their checking account could buy a $200,000 house today," said Craig Nickerson, Freddie Mac's vice president of community development lending.

Freddie Mac buys the mortgages originated by California Bank & Trust, thereby replenishing the loan pot so that the bank can help more California families buy a home.

Counseling, however, is key to the pilot program's expected success.

California's statewide network of NeighborWorks Organizations will market the new pilot program, and recruit and counsel potential borrowers. Neighborhood Housing Services of Orange County is one of the first community-based housing organizations to offer this new affordable home ownership initiative.

"Although it's only a pilot program, it hits the mark where help is needed most. Understanding the myriad of loan products, tracking interest rates and protecting yourself throughout a complicated loan and legal process is usually beyond most everyone's capabilities," said Earl Peattie, president of Morro Bay-based Mortgage News Co.

"Counseling is the only solution that gives consumer much needed control of what amounts to the largest financial venture most of us face," Peattie added.

Freddie Mac's recent treatise, "A Little Knowledge Is a Good Thing: Empirical Evidence of the Effectiveness of Pre-Purchase Homeownership Counseling", an analysis of 40,000 Freddie Mac mortgages originated between 1993 and 2000, says effective pre-purchase counseling can significantly reduce the delinquency rates of mortgages by as much as 34 percent.

Other key benefits of the new Freddie Mac pilot include flexible treatment of past credit issues and expanded debt-to-income ratios -- so more low and moderate-income families can qualify for an affordable market rate, conventional mortgage.

"This is an up-to-date program that truly addresses the affordability problem in Orange County. It will be especially helpful to the hard-working families who are struggling to cover the down payments and closing costs on a house priced between $235,000 and $285,000," says Pablo Velasquez, an Orange County real estate broker and president of Orange County's Neighborhood Housing Services.

For more articles by Broderick Perkins, please press here.

Published: June 14, 2001

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.