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No established credit could be no problem with new loan

Aspiring homeowners with low cash reserves, no formal credit history but a good track record of paying rent and other bills on time could qualify for the "credit flex-plus" program that rolls out Monday.

In what could prove to be a boon for thousands of renters squeezed out of the home-buying market, a major national lender plans to provide more than $1-billion in mortgage money to purchasers with no formal credit histories and as little as $500 in down payment cash.

Dubbed "credit flex-plus," the program offers loans up to $252,700, 30-year fixed interest rates slightly above those in the regular market and the opportunity to receive a discounted rate 24 months after closing. Scheduled for launch Monday by Bank of America Mortgage, the program represents the most aggressive effort by a large lender to expand the traditional definitions of who is financially qualified to buy a home. The program will be offered in 36 states, including Florida, and the District of Columbia.

Normally lenders require applicants to have established credit histories _ a credit file and some minimal credit score _ so they can evaluate the risks of default. They also require borrowers to have cash resources of their own that they can bring to the table as evidence of financial stability.

The new credit flex-plus program, backed by mortgage giant Freddie Mac, seeks to demonstrate that some of the old rules needlessly eliminate certain marginal-looking applicants who would be good credit risks, if given the chance. Credit flex-plus borrowers will be able to obtain or provide:

+ Three percent down payments on the house they buy, of which all but $500 can come from sources other than the applicants' funds. That means relatives, friends, employers, church groups or non-profit agencies could provide the bulk of the down payment. The program also allows home sellers to contribute up to 6 percent of the total transaction costs, such as through concessionary payments that reduce the borrower's portions of transfer taxes, title expenses and the like.

+ Unconventional, alternative credit history data. For borrowers with no credit files or scores, Bank of America will look at rent payment histories. If applicants have no 30-day late payments on their rent in the past 12 months, they may be approved. If they have neither rent histories nor credit reports, Bank of America will look for three other credit references, such as phone bills, utilities bills and personal loans, to establish creditworthiness. The standard is the same: no 30-day late payments in the past 12 months.

+ Lower minimum credit scores. The program will allow borrowers who have credit reports to have lower credit scores than normally acceptable. Low scores often prompt lenders to assess higher fees and charge significantly higher rates.

+ Zero cash reserves. The program allows you to qualify even if you'll have no bank deposits or other liquid assets available after you close.

Interest rates on the loans will be above what Bank of America charges conventional customers _ a little more than one percentage point above, on average _ but far below what applicants would be charged in the "sub-prime" market for people without established credit or low credit scores.

After the mortgage is closed, however, homeowners will be able to cut their rate by one percentage point through on-time payments for 24 months. This feature borrows from a popular trend among mortgage money providers, including Fannie Mae and Freddie Mac: so-called "good performance" rate reductions for customers who show themselves to be solid performers financially.

"We believe there are many people out there who are essentially good risks" but who look scary to lenders because they don't fit the typical credit molds, said Bank of America's Stephanie Smith, national manager of community lending mortgages.

Examples would include recent immigrants who have modest incomes, nothing in the bank and virtually no experience borrowing money but who have deep, culturally driven motivations to pay back whatever they borrow, on time. Bank of America's research also indicates there are many American-born renters who fit similar profiles.

The key to Bank of America's ability to lend to this segment of the market, Smith said, is its reliance on a combination of "high-touch, high-tech" underwriting. By "high-touch" she means that loan underwriters will be instructed to look extra closely at applicants who appear marginal but who may have good reasons for their credit situations.

Behind the "high-tech" underwriting will be sophisticated electronic statistical models that assign risk ratings to each applicant. The loans also will be analyzed by private mortgage insurers, who will bear part of the financial risk of defaults.

_ Washington Post Writers Group