In what is being billed as its "most sweeping revision of affordable lending products ever," Freddie Mac last week rolled out an entirely new group of loans the company says will allow lenders to dig deeper into the pool of hard working families who can handle the monthly payments, but don't have the upfront cash needed to close.

"Home Possible" will give lenders an automated, easy-to-use application that offers borrowers flexible credit terms, aggressive debt-to-income ratios, and cash contributions as low as $500.

The package will also allow lenders to target the largely forgotten group of would-be buyers who earn between 80 percent and 100 percent of the median income for their areas. And it has features designed to give cops, teachers, firemen, and other community service workers a 25 percent kick in their purchasing power.

Perhaps most important, however, is that Home Possible will be available to any and all of the more than 3,000 banks, mortgage companies, credit unions, and other originators who now sell loans to the big secondary market company.

The package will not replace Freddie Mac's current suite of affordable products. But the company expects that the new will quickly supplant the old as its customers' favored execution.

Freddie Mac helps keep lenders' vaults full of cash by buying their loans, and packaging them into securities for sale to investors worldwide. It doesn't deal directly with consumers, but the loans the company says it will purchase, tend to be the ones primary lenders offer to borrowers.

"This is a whole new, complete suite of significant products we never had before," said Freddie Mac Vice President David Stevens. "It fills a lot of voids."

One chasm the new offerings should leap is the one between fanfare and fizzle.

Typically, most affordable housing products are trumpeted with great fervor but in reality, are available on only an experimental basis through just a handful of lenders or are aimed at specific communities.

But starting March 1, every single lender that does business with Freddie Mac will be able to offer Home Possible, or HP for short.

Moreover, lenders will be able to submit loan applications via Loan Prospector, Freddie's automated underwriting system, so approvals should come in a matter of minutes rather than months. Only if an application is flagged by the computer will a human being enter the picture to make a final determination.

"Until now, affordable lending has been largely a manual process, almost one loan at a time," the Freddie Mac executive said. "This will be a mass distribution to the entire marketplace, not just with one lender here or five lenders there," Stevens promised. "It will be mainstreamed and it will be available everywhere."

The HP loans themselves represent "the latest thinking," according to the Freddie Mac executive. "Most affordable housing products don't hit all the touch points. But we've combined the best features of all of them to reach as deeply as we can" into the market.

"We're confident HP will perform well and expand the market," Stevens said. "It is really a very robust, broad product suite."

For one thing, HP plugs a gap that most affordable loan products have missed. Generally, affordable products are designed for people who earn 80 percent or less of the median income for their area, leaving those who make more to fend for themselves in the open market.

HP, on the other hand, targets folks who make up to 100 percent of median. "Anything below that is considered affordable," Stevens said. If the house being purchased is located in an area designated as "underserved" by Uncle Sam, there is no income limit.

The package consists of two basic products that Freddie Mac believes should meet the needs of the majority of borrowers who want a conforming, conventional mortgage but have credit or downpayment issues.

One version allows for a 100 percent loan-to-value ratio, or 105 percent if the borrower chooses to roll closing costs into the loan amount. The other limits the LTV to 97 percent.

In either case, the borrower must put up at least $500 in cash from his own pocket, a minimal amount that "has tangible value," according to Stevens. "At these income levels, we actually see better performance than if the borrower has no skin in the game," he said.

HP 100 is available on one-unit primary residences. But it can be used as a purchase-money mortgage or a refinance loan, and is available at fixed rates over 15, 20 or 30-year terms or as 7/1 and 10/1 adjustable rate mortgages.

One to four-unit properties are eligible for HP 97s, as are manufactured homes.

In all cases, the borrower's income cannot exceed 100 percent of the area median. But if the property is located in a Census tract defined as "underserved," there is no income limitation.

Another requirement is that borrowers attend home owner education classes, and give their lenders permission to call in a counseling agency if they are ever more than 10-days late with a payment.

Pre and post-purchase counseling is another key to successful ownership. Freddie Mac has found that all things being equal, borrowers who take classroom and home-study courses are much less likely to miss a payment and more likely to succeed as long-term home owners.

If anyone does, servicers are required to begin the "early delinquency counseling" process at the 10-day-late point by providing the borrower's name and telephone number to a third-party, non-profit counseling agency.

To boost the buying power of policemen, firefighters, educators, and health care workers who have been unable to afford homes in the communities they serve, HP offers an initial 3-2-1 interest rate buy-down of up to 1.5 points -- a half-a-point each year -- as well as more liberal debt-to-income ratios.

Moreover, borrowers are allowed to qualify at the bought-down rate.

In an example provided by Freddie Mac, a borrower who earns enough to buy a $200,000 house with an HP 97 at current mortgage rates could afford a $248,290 property under those special provisions. That's a difference of more than 24 percent without any increase in the borrower's income.

"The buying power built into this is amazing," Stevens said. "The additional net income buys you a ton of mortgage."

In addition, Freddie Mac is accepting perhaps the broadest definition yet of these targeted professions to include as many legitimate workers as possible. As long as they are sworn in, for example, volunteer police and firefighters are acceptable.

Healthcare workers who are licensed, credited, or certified as a resident or fellow; nurses or nursing assistants, pharmacists or pharmacist assistants, and medical technicians, technologists and therapists also qualify. And so do employees of accredited state-recognized schools, either public or private; employees of a post-secondary level education institution, and certified teachers or administrators in an education agency.

Published: February 23, 2005

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.