Across the street from bungalows with bars on their windows and trash in their yards, a developer and a grass-roots organization are selling the American dream: two stories, four bedrooms, 2 1/2 baths, with master suites and marble counter tops -- priced "from the mid-$400,000's."

It is believed to be the largest development of new homes in Watts in at least three decades, one aimed at teachers, firefighters, nurses and other first-time middle-income buyers, some of whom might qualify for interest-free loans from the city that could shave $75,000 off of their cost.

As with other construction in Los Angeles, the builders face challenges -- notably, declining home values and tighter credit requirements from lenders hit by the current mortgage crisis.

Some prospective buyers who have stopped by the site say the homes are too small or too close together for the price.

But even as wooden frames rise along Santa Ana Boulevard, the developers say that 300 potential buyers have expressed interest in the housing subdivision, whose name -- Mozaic -- conjures peaceful scenes of suburbia.

"Housing projects, gangs, bad neighborhoods, that's our business model," said Jeff Lee, president of Lee Homes, which is building the subdivision in a joint venture with Concerned Citizens of South Central Los Angeles, a nonprofit established in 1985. Construction financing has primarily come from Alliance Bank in Culver City.

"We believe that new homes change neighborhoods," Lee said.

The Mozaic homes are slated to go on sale in about a month and could be ready for occupants this summer along two blocks in the middle of one of Los Angeles' troubled communities.

Watts has struggled for decades to overcome grinding poverty, crime and a dangerous reputation, a problem underscored by three housing projects that have given birth to violent gangs.

Annual median household incomes in the community ranged from $12,000 to $25,000 as of the 2000 census -- well below the city's median of nearly $37,000.

But proponents believe that conditions may be ripe for a project like Mozaic.

Area crime has dropped significantly, including gang-related homicides, which fell 51% in 2007 compared with the year before.

Officials with Concerned Citizens believe that the homes -- with two-car garages, custom cabinets, walk-in closets and other amenities -- will offer an affordable alternative for people eager to set down roots close to their jobs and extended families.

New homes in Mozaic's price range are scarce in Los Angeles, they say.

"Price is critical. If they are priced correctly, I think we'll be able to sell," said Noreen McClendon, executive director of the Concerned Citizens group. "People are still looking to buy homes."

Seventeen of the 44 houses will be reserved for moderate-income buyers who will be eligible for no-interest loans offered by the city Housing Department, which has committed $1 million.

The loans would reduce down payments and not come due until the homes are resold or refinanced.

The city loan program could keep the cost of some Mozaic homes below $400,000, well under November's $550,000 median price of homes in the city.