The Department of Housing and Urban Development published a guide last week to help lenders reach low-income and minority borrowers and safely extend mortgage credit to them.

Augmenting homeownership among these Americans is seen as a key to reaching the Clinton administration's goal of adding eight million homeowners by the end of the year 2000 and raising the homeownership rate to 67.5%.

The guide said partnerships among community groups, for-profit developers, lenders, and others are crucial to such lending.

As an example, the report cited the Neighborhood Assistance Corporation of America, a community advocacy and homeownership services organization that recently worked with NationsBank Corp. to set up a $500 million, five- year, no-down-payment mortgage program.

The community group offers homeownership education and counsels homebuyers, as well as providing a fund to help financially strapped homeowners with loan payments to prevent default.

The guide also pointed out that, to design a good loan product, lenders must understand the special features of these markets.

For example, Chase Manhattan Bank found that first-time homebuyers tended to rely on friends in church groups and relatives for market information. Thus, Chase's loans officers participate in the activities of the community in which they want to lend.

Another example is Irvine, Calif.-based American Savings Bank's practice of counting cash income that its East Los Angeles customers earn through multiple jobs, even when the income cannot be verified.

HUD said homeownership education, followed by one-on-one counseling, has helped families with little ownership experience develop and execute a financial plan to buy a home. It also helps them understand the mechanics of buying a home and getting a mortgage.

Loan products that require borrowers to make smaller down payments and set aside less money in reserve, the guide said, have helped extend homeownership to families with low and moderate incomes. At the same time, HUD cautioned against layering risk or waiving too many traditional underwriting criteria.

Once made, these home loans require special attention to prevent delinquency and default. Lenders need to stay in close contact with new homeowners to help them adjust to making monthly mortgage payments and to spot budgeting and credit problems before they cause delinquency.

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