The City of Albany, the Mortgage Bankers Association, two banks, and Fannie Mae have teamed up to create a loan fund for first-time homebuyers to cover down payments and closing costs.

The program provides borrowers with second mortgages ranging from $2,000 to $5,000. To qualify, homebuyers must get a first mortgage on a home in Albany, either through a government homebuyer's assistance program or from a conventional lender.

Although the program is local and relatively small - Fannie is committing a total $1 million - Christopher J. Sumner, the president of the Mortgage Bankers Association, said he sees potential for developing similar programs in other cities.

"It's important that we can replicate it around the country," Mr. Sumner said. His trade group helped organize the Albany program.

Fannie will purchase a $1 million note issued by the Albany Community Development Agency. Proceeds from the bond sale will be used to fund the second mortgages.

Because the bond is unrated, the city contributed $100,000 and FleetBoston's Fleet Mortgage Group and HSBC USA Inc. kicked in $75,000 each as extra collateral. The city will administer the second mortgages. A Development Agency spokesman said it hopes to begin making the loans next month.

A Fannie Mae spokeswoman said Fleet or HSBC would originate the second loans and turn them over to a master seller-servicer to be selected by Albany. That seller-servicer would hold the loans and act as a trustee for the city. It would make payments to the city, which in turn would pay Fannie.

The loans would be made through Albany Home Store, a homebuyer-counseling center that the city plans to open in the next few weeks. Mr. Sumner said that Home Store would educate homebuyers and help to protect them from predatory lenders.

The program is a response to rising housing costs, which have made homebuying more difficult for low- and middle-income families. However, the Albany program is not pegged to income; anyone may participate.

Mr. Sumner said the program will contribute to urban renewal by encouraging people to move back to the city from the suburbs. "There is a confluence of mayors committed to cleaning cities, creating attractive city core areas," he said.

Robert J. Levin, Fannie Mae's executive vice president, said Fannie has "been involved with about $100 million of down payment assistance" nationwide. However, this is the first program in which Fannie has partnered with the Mortgage Bankers Association, he said, and the first in which private lenders have shared the risk by putting up capital.

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