Mortgages For Those Who Lack Credit Data

Funds Set Aside For Low-Risk Loans

CitiMortgage plans to announce today that it has set aside $200 million for mortgages to Washington area residents who have limited credit histories and therefore often end up with high-cost or risky home loans.

CitiMortgage, a division of Citigroup, plans to fund the loans as part of a test project that may be extended nationwide next year. Fannie Mae and State Farm Insurance each have agreed to buy $100 million worth of those mortgages.

The "thin-file" borrowers targeted by this program tend to be immigrants and others who shy away from using credit cards or taking out loans, making it difficult for lenders to assess their track record for repaying debt. Without a record, these people are usually rejected for mortgages they could actually afford or they take out pricey subprime loans, the kind that have been closely linked to high foreclosure rates nationwide.

CitiMortgage and its partners estimate that the program could serve an estimated 2,000 people in the region, with the loans averaging $100,000 each. The nonprofit group coordinating the project, Neighborhood Housing Services of America, said the average loan for the low- to moderate-income home buyers it served nationally this year was $93,000.

"This is an opportunity for CitiMortgage to help credit-worthy borrowers achieve the American dream, but it's not a program for everyone," said Jackson C. Cosey Jr., head of the strategic markets business at Citi. "It's only for borrowers who have the willingness and ability to repay."

CitiMortgage has a regulatory obligation to fund loans for minority and low-income communities.

D.C. Deputy Mayor Neil Albert is scheduled to speak in support of the program at a news briefing today, and various groups have already endorsed the project, including the National Association of Hispanic Real Estate Professionals. That group polled its 14,000 members last year, and 37 percent of those who responded said that most of their clients end up with subprime loans usually because they have little or no credit history.

To qualify for the program, a person must be in the country legally and have alternate credit lines -- such as rental payments, utility bills or a tithing record -- that a lender can use to evaluate creditworthiness.

Gathering the paperwork to confirm these trade lines historically has been a laborious process that could take months, which often discouraged potential buyers and hurt their chances of closing a deal.

But Neighborhood Housing Services, a sister organization of District-based housing advocacy group NeighborWorks America, will use a system that automates the credit-verification process and delivers results to CitiMortgage within 48 hours.

The technology evaluates whatever information is available at the national credit bureaus as well as from other sources.

Mary Lee Widener, president and chief executive of Neighborhood Housing Services, said the program is set up to comply with technical rules that allow CitiMortgage to service or collect payments for all the loans, even though the loans are resold. CitiMortgage has agreed to work with Widener's group to keep borrowers in their homes should they face job loss, illness or other events that temporarily prevent them from making payments.

"It's important to us that we have one lender to deal with in those situations," Widener said. "Our borrowers have more than their share of life events, but we've been able to stick with them, and it's very rare that we have to move to foreclose."

Bob Gnaizda of the Greenlining Institute, a national public policy and advocacy group, said that the program is an "excellent model" for other lenders and that regulators should embrace alternative credit scoring to keep borrowers away from risky loans.

"Given what's occurred, I think it's the responsibility of the Federal Reserve to lead that effort," said Gnaizda, the institute's director and general counsel.

On Capitol Hill yesterday, Democratic leaders continued their criticism of President Bush's handling of the subprime mortgage problems and urged him to appoint a special adviser to coordinate a federal response to high foreclosure rates.

To participate in the mortgage program, called R-Home, potential borrowers will first go through credit counseling. One of two District-based nonprofit groups, HomeFree-USA or Manna Mortgage, will work with potential borrowers, vet their qualifications and match them with a loan. (For information, call 866-798-0212.)

If the best loan is with CitiMortgage, then CitiMortgage will fund that loan and sell it to Neighborhood Housing Services. The nonprofit group will then sell the loans to State Farm and Fannie Mae.