Calif. Builder Offers Leases to Make Homes Affordable

Kaufman and Broad Home Corp., one of the nation's largest home builders, is using a sales technique perfected by auto dealers and appliance sales people to sell its houses to cash-strapped buyers.

The Los Angeles-based home builder will lease houses to about 300 families, then convert their leases to mortgages.

The pilot program is being offered in conjunction with the nonprofit California Rural Home Mortgage Finance Authority.

The targets are families with low and moderate incomes that have not saved for a down payment but otherwise qualify for home loans, according to Mark Crivelli, senior vice president of the company's Los Angeles-based home loan unit, Kaufman and Broad Mortgage Co.

Here is how the program works:

Prospective homebuyers will be qualified for FHA loans through the Department of Housing and Urban Development or for conventional loans through Freddie Mac, formally the Federal Home Loan Mortgage Corp. The conventional loans will be originated by the Kaufman mortgage unit.

For the first three years, the loans will be made to the rural home mortgage agency.

The California nonprofit has raised cash for down payments and closing costs with 4.5% tax-exempt bonds. The agency will use the difference between its funding costs and the monthly lease payments to accumulate down payments for the tenants so that they can take over the mortgages.

Mr. Crivelli said it would take three years to generate down payments. If a tenant retains good credit, he said, the mortgage would be transferred to the tenant.

The loans will be insured by CMAC, Philadelphia, and Mr. Crivelli said all sides expect that delinquencies will be higher for these families than among homebuyers who have saved for down payments. In general, delinquencies rise along with the loan-to-value ratio of a home loan.

As with other affordable-housing plans, tenants in this program will be counseled during the process to reduce delinquencies, Mr. Crivelli said.

He said the mortgage unit hopes to expand the pilot once all sides see how the original leases do. Fannie Mae, formally the Federal National Mortgage Association, is also expected to join the pilot shortly.

Fannie and Freddie are both embracing active outreach programs for people who might be able to afford a home but need help getting started.

Kaufman and Broad is the largest home builder in the West. It builds in California, Arizona, Nevada, Colorado, Utah, New Mexico, and Texas.

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