PHOENIX (By Jonathan J. Higuera, Arizona Republic) March 1, 2004 - It's being billed as the largest affordable-housing lending program in the state's history.

The $300 million program, unveiled at a news conference Monday, could help 20,000 Arizona families buy $150,000 homes, or 15,000 families buy $200,000 homes. And it could steer them away from predatory lenders, its creators say.

The program, called Arizona Homebuyer Solutions, targets low- and middle-income families who may qualify for other home loans yet are hard-pressed to come up with the down payment and closing costs. The program is the result of a partnership between Family Housing Resources, a non-profit agency with offices in Phoenix and Tucson, and CitiMortgage, one of the country's largest mortgage lenders.

It's intended to help attack the growing problem of housing affordability in the Phoenix area, where prices of used and new homes have soared by more than 20 percent over the past year. The increases have far outpaced wage gains among workers.

So far, about 30 lending institutions around the state have been working with the program, and more are expected to join. Because the program uses private funds and does not involve government entities, it steers clear of restrictions found in many affordable-housing programs. In this case, the program is open to prospective homeowners who earn up to 140 percent of the area's median household income. In Maricopa County, that means qualifying participants could make as much as $82,000 a year.

Homebuyer Solutions addresses the down-payment problem by providing a second loan to cover those costs. The second loan is given at a fixed interest rate, currently at 7 percent.

"One of the biggest barriers to homeownership is coming up with the funds for a down payment and closing costs," said Jim Feltham, president of Family Housing Resources. "This program provides that."

Conceivably, a participant could move into a home with just $500 to cover the loan paperwork.

Homebuyer Solutions is patterned after a similar program in California that lent $4.5 billion in three years. Now, affordable-housing advocates are bringing the program to Arizona's red-hot housing market.

At a news conference at the Pearl Harbor Memorial at the state Capitol, local housing, banking and lending officials joined U.S. Rep. Ed Pastor, an advocate of affordable housing, to unveil the program.

Supporters said it stands out from traditional mortgage loans in several ways.

For example, home buyers can participate even if they have lower credit scores than those normally accepted by mainline lenders. Often, consumers with low scores can secure only high-interest "subprime" loans. Borrowers with FICO credit scores as low as 600 are still eligible for favorable loan terms.

"Sometimes the only difference between someone with a 600 score and a 700 score is a late credit-card payment or an outstanding medical collection," said Carlos Alcazar, director of housing at Family Housing Resources. "But they are still a good risk for a home loan."

The program also combines private mortgage insurance with the loan to help lower the buyer's overall monthly payment.

"When you have homeownership, you have more ownership in your neighborhood, your community, your state and your country," Pastor said.

Alcazar added, "This is the future of these types of assistance programs: Getting rid of government restrictions."

"This will really open it up to a broader universe of potential owners," said C. Scott Riffle, senior vice president of George K. Baum & Co., a consultant banker that helped structure the program and was involved in the California program.

Dawn Saxman, an assistant vice president at BankUSA, one of the lenders in the program, said interest rates for the second loan should be especially attractive to prospective homeowners.

"Typically, the second loan is a variable rate," she said. "With this fixed-rate second loan, they have the security and stability of knowing what the rate will be."

The program already has opened doors for Bryce Button, a 23-year-old registered nurse at the Mayo Clinic. She was approved for a loan under the program and plans to buy a $95,000 condominium.

"It's almost impossible to put 10 or 20 percent down when you have school debt or other debt," she said.

Alcazar said another lender in the program made a $230,000 home loan to a client making $42,000 a year.

"The person had excellent credit and didn't have any other debt," he said.

The program will even be attractive for buyers who could get a conventional loan, he added.

"We encourage all borrowers," Alcazar said. "We're not excluding anybody. This would allow people to keep their down payment in their pocket and use it for their homes."