Teachers Get Some Needed Extra Credit


Teachers take note: There’s a new mortgage assistance program to help you buy a home in California.

A $100-million home loan program for teachers has been launched by the Bank of America and secondary mortgage market investor Freddie Mac.

The program, dubbed Teacher Flex, allows teachers with limited experience and sparse credit to apply for mortgages with Bank of America. Even part-time or substitute teachers can apply for the loans, which have lower down payment and credit rating requirements than conventional loans.

The effort is among the first in the nation to offer teachers housing assistance with few strings attached. It’s geared to help California teachers who often can’t afford homes in the communities where they work.


This problem is exacerbated by a shrinking inventory of homes throughout the state and an intensifying housing affordability crisis.

“What’s particularly troubling is that school and municipal employees’ incomes aren’t keeping pace with rocketing home prices,” said Craig Nickerson, vice president of community development lending at Freddie Mac.

The average pay for a teacher in California is about $46,000 a year, according to the California Teachers Assn. Median home prices in the state, meanwhile, range from about $120,000 in San Bernardino County to $350,000 in San Jose.

The Teacher Flex program tries to help bridge the gap between teachers’ salaries and rising home prices by allowing teachers to put a minimum of $500 down on a home.

The rest of the required 3% down payment can come from a gift from a family member or a grant or assistance program provided by a local community, said Stephanie Smith, national manager for community lending mortgages at Bank of America.

Several cities, including Sacramento and San Jose, are working on down payment and closing cost assistance programs for teachers.

Teacher Flex allows educators to stretch their incomes further when they’re applying for a mortgage because it raises the debt-to-income ratio allowed on the loan and doesn’t require a minimum credit score, Smith said. It does, however, require applicants to prove that they have paid their rent on time for 12 months.

To qualify for the program, teachers must be employed by a public or private school. They need not be state certified to apply. The program is also available to teachers who have second jobs that bring in up to $600 a month, Smith said.


The loan limit for the program is $350,000. Loans can be used for single-family homes or condos but are not available for refinancing. The program does not require a teacher to buy a home in the district in which he or she teaches.

Under Teacher Flex, Freddie Mac, which operates under a government charter to expand homeownership, will buy up to $100 million in mortgages from Bank of America and package them into securities for sale to investors.

Freddie Mac is also partnering with state Treasurer Phil Angelides and the California State Teachers Retirement System, or CalSTRS, to expand an existing home loan program.

Under the partnership, CalSTRS will initially offer up to $100 million in no-down home loans to teachers. The mortgages will be backed by securities purchased by the treasurer’s office and Freddie Mac.


More Restrictive Than Teacher Flex

The CalSTRS program is somewhat more restrictive than Teacher Flex. It’s available to full-time and part-time teachers who teach kindergarten through community college and who are state certified. CalSTRS, which has made $3 billion in home loans mostly to public school teachers since 1986, last year started offering loans that don’t require a down payment.

“The biggest deterrent to homeownership is the down payment, particularly for teachers,” said Patrick Mitchell, chief investment officer for CalSTRS.

Teachers can contact any of 20 lenders affiliated with CalSTRS to apply for zero-down loans. CalSTRS will finance 95% of the first mortgage on the home. Then, instead of a down payment, CalSTRS will provide a 5% “silent second” loan.


The interest and principal on the second are deferred until the homeowner sells or refinances the loan. At that time, the homeowner is required to pay off the loan, plus interest accrued at the rate that applies to the first mortgage.

The maximum loan limit for CalSTRS mortgages is $350,000. The group specializes in mortgages for homes between $150,000 to $250,000, Mitchell said.

State officials, who must attract 300,000 new teachers to California in the next decade to meet school district needs, are also considering mortgage assistance programs for teachers.

Gov. Gray Davis has proposed offering $10,000 in forgivable home loans for teachers who agree to teach at low-performing schools for five years. This proposal, in addition to other incentives for teachers who work at low-performing schools, is included in a bill scheduled for a hearing in the senate education committee next week.


Other home loan programs for teachers include:

* The Extra Credit Teacher Home Purchase Program announced by Angelides early this year. This program is available to teachers who agree to serve in low-performing schools for five years. Teachers who are applying for assistance under Teacher Flex can also apply for this program if they meet the requirements, Smith said.

The $150-million Extra Credit program could provide 4,000 teachers a tax credit of 15% of their mortgage interest, worth up to $1,800 a year. Officials will start accepting applications for the program in the fall.

* The “Teacher Next Door” program introduced by the Department of Housing and Urban Development last year. The effort is based on HUD’s popular “Officer Next Door” home loan program.


For teachers, HUD offers a 50% discount on homes that have been foreclosed on by the Federal Housing Administration in distressed neighborhoods. Teachers must promise to live in the homes for up to three years.

The government reduced the down payment requirement to $100 on these homes if they are purchased with FHA-insured mortgages. So far, about 120 homes are in escrow under the program in 14 states. About 34 of these homes are in California.

* The American Home Ownership and Economic Opportunity Act of 2000 being debated in Congress now. This housing reform package would allow public and private schoolteachers to qualify to buy homes with minimal down payments and deeply discounted property prices.

Under the bill, teachers would be able to obtain mortgages with 1% down for up to $219,849 through the Federal Housing Administration. Teachers would also be able to buy houses at 50% discounts off appraised market values and with $100 down payments.


To qualify, teachers would need to be employed full time in elementary or secondary school education and must not have owned a home in the local school district for the last year. The legislation is set for final action in the U.S. House of Representatives and could be heard by the Senate later this session.

For More Information * Teacher Flex: See or call Bank of America at (888) 815-2724 to apply over the phone or visit a Bank of America branch to apply in person.

* CalSTRS Home Loan: Visit or call CalSTRS at (800) 228-5453.

* Teacher Next Door: Visit or call HUD at (800) 217-6970.