A Florida county housing agency could be the first in the country to establish a savings bank to provide cheaper home loans for low-income families.

But, after six years of organizing, the Federal Deposit Insurance Corp. stands in its way.

The bank, to be owned by the Dade County Housing Finance Authority in Miami, would be a novel approach to helping banks meet Community Reinvestment Act requirements in the Miami area. The agency touts it as a model for public/private mortgage banking for low- and moderate-income home buyers.

The FDIC, however, thinks the authority's funding strategies for the bank are untested and risky. The bank would rely on socially motivated banks and investors, willing to make deposits and to purchase "conscience bonds" at below market rates of interest.

The FDIC rejected the authority's application in August, stating in part that there is no indication that such unconventional funding strategies would work. It added that the bank would be vulnerable to interest rate risk exposure and would not have enough asset diversification.

But since the FDIC's decision, the Dade County authority has been buffeted with calls and letters of support from area bankers and investors.

"In a way it was good that we were rejected the first time because since then we've had an outpouring of community support," said Patricia Braynon, executive director of the Dade County authority. "Around 20 banks said they would make deposits with us, and another 20 would purchase mortgages, so there's no question that there is sufficient backing for the idea."

The fact that such a bank has never before been created could lie at the heart of the FDIC's reluctance, housing authority officials and bankers believe.

"It's a novelty," said John Murphy, executive director of the Association of Local Housing Finance Agencies in Washington, a group that is encouraging county and state housing agencies to start savings banks. "There's no track record in this area, and I think the FDIC is worried about that. They made a conservative decision, and we take issue with that."

The Dade County authority last month appealed the FDIC's rejection. Agency officials would not say how long a ruling on the appeal will take.

The decision to reject the first application took six months. The state's Department of Banking and Finance approved the application last December.

"I thought it was ironic that the FDIC rejected this, since they are our primary CRA auditor," said William Heffernan, president of Totalbank in Miami. "It seemed to me like an excellent idea, a perfect vehicle to let banks participate in these types of loans."

The bank is the brainchild of Milton Wallace, chairman of the Dade County authority, who came up with the idea in 1987. "I was trying to think of a creative use of money with a multiplier effect," Mr. Wallace said. "I was looking for a way that we could recycle the mortgages every time we made one. The answer was a bank."

The bank would work by taking deposits ranging from no interest to 2% below the market rate, allowing it to make more affordable loans to potential homeowners. Those mortgages would then be repackaged and sold on the secondary market as "conscience bonds," again at the lower rates of interest.

Mr. Wallace estimates that the lower rates mean that the average family would need about $5,000 less in income to afford a home loan.

The bank would also provide a lot of "hand-holding" for families as they go through the application process. This would be provided at first by three small offices in the community.

The savings bank would appeal to the large number of Edge Act banks -- primarily subsidiaries of foreign banks set up to facilitate international trade -- in the Miami area, as a way for them to meet Community Reinvestment Act requirements, Ms. Braynon said. Dade County HFA Time Line 1967 Milton Wallace, chairman of Dade County Housing Finance Authority, conceives of idea for savings bank. 1988 Application for state charter rejected. Florida law prohibits public agencies from owning savings banks. 1992 Florida Legislature passes law allowing public agencies to own savings banks. 1993 Florida Department of Banking and Finance approves application for bank after one year review; application to FDIC submitted. Aug. FDIC rejects 1994 application. Case now under appeal.

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