Cities nationwide are now turning to home lending to help them rejuvenate their neighborhoods.

Seattle, Hartford, Atlanta, Washington, and several other cities have recently started or are planning home lending programs for their employees. The idea is to supply mortgages below market rates to encourage them to move into or remain in the city. And it seems to be working, if slowly.

"Cops living in your neighborhood, it stabilizes neighborhoods," said Heyward S. Watson, director of the homeownership programs of the Washington State Housing Finance Commission.

"There are more cities trying to do it because they want to see employees live within city limits."

New Haven, Conn., is the latest to initiate such a program. Last month, the city began putting together a request for proposals from lenders. In what is known as an affinity lending arrangement, the mortgage bank originates loans for city employees at a slight discount on behalf of the city.

"The goal of the program is to encourage homeownership in the city," said Stefan I. Pryor, policy adviser to New Haven's mayor, John DeStefano.

Currently 50% of the city's 5,500 employees live outside New Haven, Mr. Pryor said.

He said the city cannot "mandate" employees to live locally. Instead, it is using what he calls "the carrot approach."

"Our goal is to encourage as many people as possible to live in the city, especially our city employees," he said.

The city official said the lending program will offer employees reduced down payment requirements and lower interest rates, escrow fees, and closing costs, among other benefits.

Atlanta is considering a proposal that would offer less expensive loans to its police officers. Portland, Ore., already runs a program just for police officers.

Initially, Seattle aimed its employee lending program only at police officers and firefighters. But other city employee groups have begun to request entry into the program, said Gary R. Clark, Seattle's planning and development specialist.

Public school teachers approached the city in September about joining the program. Mr. Clark said they and the rest of the city's 10,000 employees are likely to be included in the program next year.

U.S. Bank, which runs the program, has originated more than 35 home loans since it began in March.

Mr. Clark said the slow start was expected, as is a quicker pace of originations in the future.

Mr. Clark, who is probably the nation's expert on such lending, recommends against using public funds or working with unions.

He said the program would smack of an unequal benefit if public money is used. And unions would require that the plan be altered.

Welcoming Mat

Some cities offering home loan programs to encourage employees to live in town New Haven Target: All employees Size: 5,500Status: Request for proposals going out Seattle Target: Police and firemen Size: 3,000Status: Likely be expanded to all city employees Hartford, Conn. Target: All employees Size: 2,200Status: Currently in the introductory stage

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