Call them reverse-rate mortgages for the credit-impaired.

Call them good behavior loans. Or heal-thyself home financing.

Whatever name you give them, they're the hottest concept this fall in the American home mortgage market. And they are transforming the traditional, punitive approach lenders have taken when dealing with home buyers and refinancers whose credit records aren't up to snuff.

Now lenders are bending over backward to give applicants a second chance, plus a rate break. In fact, if you have less-than-perfect credit and your mortgage doesn't carry an automatic rate-reduction feature when you pay on time, you're missing out.

The biggest players in the heal-thyself movement are some of the giants of the mortgage industry: Fannie Mae, the largest source of home financing money, now offers a "timely payments rewards" loan nationwide. For qualified borrowers--those with modest dents and nicks in their credit histories--Fannie not only provides a below-market starting interest rate, but guarantees that it will lower that rate by a full percentage point in 24 months, provided you pay on time. The rate reduction is cast in stone, even if interest rates in the economy increase.

A subsidiary of Countrywide Home Loans last week sweetened the pot even further: Countrywide's Full Spectrum affiliate has begun offering credit-impaired applicants 1.5 percentage points off their starting rate, through annual decreases spread over 48 months. You might begin with a 9 percent rate today, but end up with 7.5 percent 48 months from now--no matter how high rates have jumped in the economy as a whole.

Other lenders hold out even larger carrots--though they also tend to start at higher rates than Fannie Mae or Countrywide. Associates First Capital Corp., a Texas-based home equity lender, offers borrowers with credit problems up to 2.25 percentage points off the starting rates for timely payments over three years. Still other lenders search their portfolios for borrowers who began with extra-high rates because of splotchy credit, then offer generous rate reductions to those with the best payment records.

Why the sudden surge in heal-thyself therapy? In part, the trend is a byproduct of the explosion in consumer credit problems in the past five years. Despite a booming economy, more families are carrying large credit card balances at high interest rates, and more families are filing for bankruptcy protection from creditors--an estimated 1.4 million this year alone.

At the same time, lenders are relying more heavily on electronic credit-file data and credit scores to determine whom they lend money to, and at what price. Huge companies such as Fannie Mae and Countrywide use sophisticated predictive software to identify who'll default on mortgage payments. Inevitably, families who've been late on payments to creditors are ranked as bigger risks to default. They tend to get hit with higher interest rate quotes on their mortgages, sometimes 3 to 5 percentage points above what typical borrowers pay.

But as predictive models have become more accurate, companies such as Fannie Mae and Countrywide believe they are better equipped to spot key gradations among credit-impaired home buyers and refinancers. Borrowers whose credit behavior patterns reveal them to be what one mortgage executive calls "past sinners but future angels" now can qualify for far better treatment than they might have gotten barely a year ago.

There is "no reason why borrowers who are essentially good risks but have had a few blemishes on their credit in the past" should have to pay 11 percent for their mortgage in an 8 percent market, says Michael Nester, a Northern Virginia branch manager for Irwin Mortgage Corp., a large national lender. Using the new Fannie Mae rewards program, Nester says, "we now have the opportunity to put these people into a home at a much better rate" than they would have gotten in the past--easily two full percentage points below the competing rates quoted by "sub-prime" companies. Plus, if the buyers pay on time for 24 months, their rate can drop another point for the remaining 28 years of the loan term.

Fannie Mae Vice President Frank DeMarais says part of the reason his company has rolled out the rewards program is to "provide money at a lower cost to more people." But another factor is the sheer size of the "slightly impaired" credit market. Fannie Mae estimates that $30 billion to $35 billion worth of home loans are needed every year in the so-called "A-minus," not-quite-up-to-snuff market.

Are you part of this large group of consumers who should be getting lower rates on your home loan, having established yourself as a solid, steady, payer month after month for a year or more? Contact your mortgage lender and ask that very question. If you don't like the answer, shop around for new lender--one who's willing to give you the rate break your payment performance deserves.