Mortgage applicants with little or no credit histories will be eligible for rock-bottom interest rates under a pilot program announced at the Mortgage Bankers Convention in Chicago last week.

Combing alternative methods of credit reporting and scoring with extensive counseling both before and after the closing, the program will enable Neighborhood Housing Services of America and its mortgage-lender partners to extend prime-grade loans to buyers who otherwise would have been relegated to subprime rates, if they could have qualified at all.

The effort is being underwritten by State Farm, the big insurance company, which is creating a $100 million pool that will help some 5,000 home buyers secure loans at competitive rates.

Under the new "Prime-Grade Mortgage Program," NHSA will create a secondary market for loans underwritten with First American's "Anthem" suite of alternative credit reporting and scoring products.

Using capital from socially responsive investors, NHSA purchases first and second mortgage from the country's 240 local, non-profit NeighborWorks organizations and their lender partners. NeighborWorks is a congressionally charted corporation that creates opportunities to live in affordable homes.

Anthem combines such supplemental information as utility bill payments and rental receipts with credit bureau data to build a more complete picture of an applicants' creditworthiness. This type of evaluation is particularly helpful to first-time minority and immigrant buyers who are less likely to have the thick credit files lenders want to see but nevertheless have established significant payment histories with entities that don't report to credit bureaus.

In addition to credit screening, applicants undergo pre- and post-purchase counseling. Statistically, owners who go through these programs are less likely to default than those who don't.

"By demonstrating these consumers are not higher risk, and by providing lenders with a secondary market to sell loans post-close, our Prime-Grade Mortgage Program directly addresses the challenge faced by an estimated 50 million consumers currently locked out of appropriate mortgage financing by traditional lending standards," said Mary Lee Widener, president of NHSA.

Serving just 3 percent of the 50 million people who have little or no credit histories would generate some $2.3 billion in new loan volume, according to a State Farm estimate. "More importantly," the insurance giant said, "it would allow a larger percentage of Americans to purchase homes at fair and affordable mortgage interest rates."

The first loan under the program was made last month in Cincinnati to a single mother with no money for a downpayment but a good job as a practicing nurse. Because she had a 580 FICO score, she was denied for a mortgage. But when she went to the Homeownership Center of Greater Cincinnati, the NHSA affiliate sent her to Fifth-Third Bank.

Using alternative credit data, the big regional lender approved her application and funded the mortgage, which was simultaneously purchased by NHSA using the State Farm pool.

"Life for her will be different," said Landon Taylor, vice president of market development for First American. "Our goal is to make life different for 5,000 people like her."

Published: November 1, 2006

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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.