A new mortgage program for cash-poor and credit-challenged home buyers will enable lenders to reach previously under-served borrowers like "no other mortgage," according to Freddie Mac, the congressionally-chartered agency that supplies lenders with financing for one in six home loans.

Early reviews by local experts say the new loans could help level the playing field for new home buyers competing with wealthier home buyers with established credit.

"The immediate advantage I see for our high-cost area is a faster, more competitive preapproval," said Mike Donohoe, broker/owner of Silver Creek Financial, one of scores of local lenders and brokers learning the ropes on a mortgage program that was scheduled to debut March 1--just in time for the spring home-buying season.

"If this option is truly available for credit-challenged borrowers in an automated fashion, then they become as competitive as others in getting an offer accepted," said Donohoe, a past president of the Santa Clara County Association of Realtors.

Freddie Mac's "Home Possible Mortgage" combines borrower education, early delinquency counseling, zero- and 3-percent down payment mortgage products and flexible credit requirements that allow low- and moderate-income borrowers to move into a single-family home with as little as $500 toward the down payment or closing costs.

"The educational program that they must enroll in will do so much for the delinquency rate of borrowers. Education is really a must for almost all borrowers, even if you are not getting a loan under this program," said Robert Aldana, a real estate agent and president of Silicon Valley's Hispanic Association of Realtors and Affiliates.

Two-unit properties require borrowers to put down 3 percent of the property's value; 3­4-unit properties and manufactured homes require a 5 percent borrower contribution.

"The biggest thing is that this suite of products is available nationally from 2,000 lenders and 10,000 mortgage brokers who use Loan Prospector (an automated underwriting tool that speeds the approval process). Previously, loans with these features were available only on a negotiable basis with lenders, and they were typically tied to revitalization projects where a city was trying to stimulate home ownership in a given area," according to Brad German, spokesman for Freddie Mac.

"It would be very much worthwhile to talk to a lender and check it out to see if you can qualify for this product. It's a conforming (home loans as high as $359,650 on single-family homes), conventional mortgage rate as opposed to sub-prime or other rate," German added.

Two additional loans called "Home Possible Neighborhood Solution Mortgages" target key community workers--teachers, law enforcement officers, firefighters and health care workers.

The loan combines a temporary subsidy buy-down (effectively reducing the initial rate by 1.5 percentage points in the first year and 0.5 percentage points for the next two years) with a higher debt-to-income ratio to boost the home buying power of community workers by as much as 30 percent.

"A 43 percent debt-to-income ratio gives you extra flexibility, and there's no hidden administration fee or other costs," German said.

For example, a borrower with adequate reserves earning $2,761 a month and making a 3 percent down payment can boost her home buying power from $200,000 to $260,400 by opting for a Home Possible Neighborhood Solution Mortgage over standard 97 percent LTV mortgages, Freddie Mac says.

Both Home Possible loan varieties are available as 15-, 20- and 30-year fixed rate mortgages or as 7-1 (fixed for seven years, then adjusting once a year thereafter) or 10-1 adjustable rate mortgages for one-unit properties.

Also, to qualify for the new loans borrowers can earn up to 100 percent of their area's median income. If they earn more than the median, they can qualify by buying homes in designated underserved market areas--which generally includes areas heavily populated by ethnic minorities, older residents and lower income groups or some combination thereof.

While the program could make loans available to tens of thousands of borrowers nationwide who otherwise were less qualified, that program doesn't make housing less affordable--only easier to acquire.

"The only danger I see in these types of programs is the ratio factor. These loans allow for higher debt-to-income ratios (which means the loans allow borrowers to spend more of their income on housing). Ratios are determined by your gross income, not your net income (take home pay). Borrowers must be prepared to pay property taxes, insurance, utility bills and other costs associated with home ownership. Buyers still must buy within their means," said Aldana, of LetsTalkReal Estate.Com.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.