Freddie Mac took aim at the depressed Northeast housing market when it kicked off the third phase of its Massachusetts-based Middle-Class American Dream program, a project that has already housed more than 2,000 families in eight of the state's metropolitan areas.

The program, which has been in effect since February 1992, makes it easier for families to afford homes by reducing down-payment requirements and relaxing loan criteria. The plan allows families to forgo the standard down payment of 20% of the home's purchase price in favor of a 5% down payment. Families also need less total income to qualify for a mortgage and may count 33% of their income, rather than the standard 28%.

The program, designed by Massachusetts State Treasurer Joe Malone, "not only helps families buy homes ... but is a successful model that other states can replicate to make homeownership more affordable," said Warren Raybould, Freddie Mac's senior vice president of marketing and sales.

Malone expects that up to 1,500 additional home buyers will be able to take advantage of the program over the coming year.

While reducing loan criteria was an important part of the program, Malone also ensured that a number of other options were in place that would attract first- and second-time home buyers. The options include a maximum debt-to-income ratio of 38%, no purchase price limitations and a guarantee that 95% of loans are eligible for single-family homes.

The income limits for the program are set by the Department of Housing and Urban Development at 135% of the median income. The income limit is 115% of the median income when the borrower uses the three/two option for a 95% loan. Under the Freddie Mac three/two plan, borrowers may use their own funds to reach 3% of the required 5% down payment, while the remaining 2% can be part of a gift or grant fund. The program's 135% median income requirement would put Boston's income limit, the highest for the state, at $69,120; under the three/two plan, Boston's limit would be $58,880. Fall River's 135% limit is a state-low $48,195; its three/two limit is $41,005, also a state low.

Phase III consists of a $125 million investment from the $7.4 billion Massachusetts State Treasurers and Employees Retirement System, or Masters, pension fund in Freddie Mac guaranteed securities.

After participating lenders across the state make loans to Massachusetts home buyers, Freddie Mac buys and pools those mortgages into securities. Under the first two phases of the program, Masters committed more than $200 million.

Freddie reports that 31% of its approved lenders began accepting American Dream Phase III applications Sept. 15.

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