Even Thomas O. Mulry's business attire has become unconventional.

In the last year, the National Westminster Bank USA vice president has ditched his bankerly suits for corduroys. He wears ties only because his wife just bought him a bunch of flowery, colorful ones.

The change in uniform reflects a change in assignment. Mr. Mulry has been on loan to Neighborhood Housing Services of New York City Inc., a not- for-profit corporation on the front lines of the battle to obtain loans for borrowers with low incomes and often little in the way of a credit history.

The change in venue has also changed many of Mr. Mulry's views on low- income lending. He has come to understand that such lending is hard work and far more difficult than making loans to prime applicants.

Down the block from Manhattan's Fashion Institute of Technology, where tomorrow's couture designers hone their skills, Neighborhood Housing Services works to make homeowners out of some once-unlikely candidates. Some 600 applications were approved for the group's clients last year.

Large maps of New York City, marked to show redevelopment sites, are posted throughout the community group's offices. So are scores of poster- sized photos of smiling borrowers standing in their new homes. An erasable board shows loans still unclosed. One was for only $3,572.

Making such loans "gives you a warm, fuzzy feeling every once in a while," said Mr. Mulry, a conservative Republican. "You really feel like you are doing something that matters."

In many cases, banks could not make such loans on their own, said Kathleen Parisi, Neighborhood Housing Services' director of lending. Under the mechanics of the community group's program, it receives loans from the banks, then lends the money to the applicant.

"I don't see how at these times a bank could take on these projects," she said. "I don't know how they would stay afloat."

Often, hours are spent teaching clients, many of them elderly, how to fill in a form or clearing up a tax problem.

"You have to be very creative in how you structure these things," she said. "When I say creative I don't mean to minimize the risk." Apparently, the group has done a good job of controlling risk. It has not had a foreclosure in 12 years, and its delinquency rate is roughly comparable to that of FHA loans.

Natwest's Mr. Mulry said working in the Neighborhood Housing Services's office has been "an eye-opening experience - and I mean that in a positive sense." He said that when he tells banking colleagues about the lean qualifications of some of the group's borrowers, they often respond, "Oh my God."

"We have seen his jaw drop a couple of times," said Ms. Parisi of Mr. Mulry.

But Mr. Mulry said he has grown accustomed to the unconventional lending at Neighborhood Housing Services. And he said it is important for other bankers to get away from knee-jerk reactions to flawed loan applications and realize that such loans can provide good business. "These things are not grants; these are loans," he said.

Ms. Parisi said banks do not deserve their poor reputation regarding low-income home lending. She said by working with groups like Neighborhood Housing Services, many banks are able to reach out to the unconventional borrowers the groups represent.

About two dozen banks work with Neighborhood Housing on low-income loans. Among them are: Citibank, Chemical Bank, Republic National Bank, Emigrant Savings Bank, Marine Midland, European American Bank, J.P. Morgan & Co., Bank of New York, and Bankers Trust.

Most of Neighborhood Housing's funds come from contributors such as Rubenstein Associates Inc., the New York public relations outfit; Bear Stearns; Xerox Corp., and the Rockfeller Brothers Fund.

Ms. Parisi said the banks were open to meeting the needs of Neighborhood Housing Services' clients. One obvious reason is the Community Reinvestment Act, which requires lenders to make loans in all neighborhoods in their market areas. But she said that's not enough; banks have to want to make such loans.

Mr. Mulry said it is difficult for a bank to do on its own what Neighborhood Housing Services does. A visit to the group's offices is a good initiation to low-income lending, he said.

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