Two of the biggest players in the mortgage market -- Bank of America and Fannie Mae -- are teaming up to make home buying easier for teachers, police officers, firefighters, nurses, hospital workers and other community service professionals.

Beginning this week, eligible workers will be able to apply for new "neighborhood champions" mortgages that bend and stretch standard underwriting rules on credit, income, assets, and downpayments.

On average, according to Bank of America, people in these occupations working in central cities have less than a one-in-three chance of finding a home they can afford, and just a three-in-ten chance in the surrounding suburbs. The median income earned by these occupations is below the minimum needed to qualify for the median price home in the country -- $156,000 -- using a traditionally underwritten, conventional loan program.

"We want to make sure the professionals who make the neighborhood a better place can live there, too," said Kevin Shannon, Bank of America Consumer Real Estate president. "Teachers, police officers, firefighters and medical workers often do not have the income or assets to meet the stringent requirements of most traditional loans."

The new program suspends some of the key standard mortgage underwriting guidelines:

• Credit standards are highly flexible. Applicants with little or no credit history, or below-par credit scores because of "thin" credit files, can be underwritten on the basis of 12 monthly rent payments plus telephone, cable TV or utilities payments. This should be particularly helpful to younger teachers, police academy graduates and firefighters who may not yet have established banking relationships or credit sufficient to qualify for a mortgage under traditional rules.

• Qualifying income can include undocumented cash from sideline employment or moonlighting.

• Downpayments on a $333,700 maximum mortgage can go as low as zero, with just $500 required from the applicant's resources to handle part of the closing costs. Gifts from relatives, friends or organizations can substitute for or be added to contributions of savings or other financial assets by the applicant.

• Financing proceeds can be used to purchase either one- or two-unit properties, condominiums and cooperatives in select areas. The loans carry 30-year fixed-rate and "7-1" hybrid ARM terms.

Fannie Mae has committed to buy all neighborhood champions mortgages originated by the Bank of America, according to a spokeswoman, Janice Daue. Though the program will be rolled out nationwide during mid-July, pilot programs aimed at teachers have already funded over 12,000 loans, according to a Bank of America official. One early beneficiary is Debbie Moore, a special education teacher in the Olathe, Kansas, school system. Moore had been living in an apartment for five years, barely getting by and accumulating scant savings on her modest income.

She wanted to buy a home, she said in an interview, but "on my income, I just didn't see how I could possibly afford anything." But using a pilot "teacher-flex" version of the new "neighborhood champions" program, Moore was allowed the expanded credit rules to put gift money from her parents toward a downpayment and closing costs, and recently purchased a $138,000 townhouse.

Gwen Thomas of Bank of America told Realty Times that eligibility for the new, easier-credit mortgages is aimed at three broad groups: Police and firefighters; medical workers in hospitals, doctors' offices and nursing facilities; and teachers from elementary level to college. There are no minimum or maximum income standards for the program. Mortgage brokers who originate for Bank of America's wholesale channel will be able to offer the loans locally. But the best source of guidance on the new targeted mortgages will be from Bank of America direct at 1-800-900-9000. Bank of America branch offices will not be part of the program.

Published: July 12, 2004

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.