Sovran/D.C. National Bank will provide $10 million in home loans at favorable interest rates to low- and moderate-income residents in the District of Columbia, bank officials and the city government announced yesterday.

Residents could acquire homes with as little as $500 of their own funds under the program, and Sovran will ease other lending requirements,although it will not pay down payments or closing costs. However, the District government has money available for these costs under its low- and moderate-income housing programs, said Patricia Shannon, Sovran/D.C.'s senior vice president. Assuming an average mortgage of about $80,000, the program could assist more than 100 buyers.

Sovran's announcement comes in the wake of a recent report by D.C. banking regulators that said six Maryland and Virginia banks, including Sovran/D.C., were not living up to agreements they made to invest in the city's poor neighborhoods.

But Robert P. Pincus, the bank's president and chief executive officer, said Sovran is "not reacting" to that report. The bank began work on its proposal months ago, after hearing from the D.C. government that "they wanted banks to do more" for economically depressed neighborhoods, he said.

Sovran said it plans to concentrate its lending on "the District's economically under-served areas such as Anacostia, Far Northeast and Southeast."

Pincus said, "We recognize the critical gap between housing costs and income in the District and are committed to providing mortgage money to narrow it."

The bank will offer interest rates of half a percentage point below the rate (now at 10 percent) for 30-year mortgages insured by the Department of Veterans Affairs, and finance up to 95 percent of the purchase price. At least $500 of the remaining 5 percent of the cost of the homes must be produced from the buyers' own funds.

But the rest of the down payment and money for settlement costs can come from other sources, including three existing District government programs that help low- and moderate-income residents buy homes.

Settlement charges on an $80,000 mortgage would range from $3,200 to $4,000, Shannon said.

The "most significant" element of the new agreement is the bank's agreement to relax credit requirements, said Charlene Drew Jarvis, chairwoman of the D.C. Council's Housing and Economic Development Committee. "I think this is a very visionary program," Jarvis said.

Prospective buyers without a credit history can use "alternative sources" as evidence of creditworthiness, such as payment of utility bills and rent. Buyers using the new program will get counseling on budgeting, home maintenance and other tasks homeowners face.

The bank will begin taking applications from prospective borrowers July 2 and expects to approve loans and complete sales within the "normal processing" time of four to six weeks, according to Sovran officials.

Sovran said it will cooperate with D.C.'s Department of Housing and Community Development, Local Development Corp. and Office of Banking and Financial Institutions in the new loan program. Sovran said it also plans to expand its lending to renovation and permanent financing needed under the District's Homestead Housing Preservation program.