Middleborough-based Plymouth Savings Bank is offering its Zero Down/Live Where You Work mortgage program in 13 communities on the South Shore.

While rising home prices and brisk sales reflect a vibrant market, one important segment of the population has been effectively shut out of the record rise in homeownership.

Traditionally, municipal employees have fallen into the low- and moderate-income categories. These include teachers, police officers and town hall workers, many of whom can’t afford to live in the communities in which they work. The difficulties are compounded in areas such as the South Shore, where demand for housing has greatly increased over the past decade.

A new program begun last week seeks to remedy the situation, however. The Massachusetts Housing Finance Agency and Plymouth Savings Bank launched the Zero Down/Live Where You Work loan program. It’s available to all full-time municipal employees in 13 of the towns where the bank has a branch.

The Mortgage Insurance Fund of MHFA provides insurance on the loans made by the bank. Plymouth Savings, in turn, makes the loans available to their target audience at lowered interest rates and fees.

Highlights of the program include no down payment required on a 30-year adjustable rate mortgage, with the first five years coming at a fixed rate. A total of $5 million in funding is available. To qualify, employees must meet household income requirements. Income caps range from $61,300 in Middleborough, Raynham and Lakeville to $94,500 for Plymouth, Wareham, Duxbury and Kingston.

“The banks typically don’t do 100 percent financing. MHFA was interested in providing the insurance coverage on 100 percent financing loans, so it was a pretty good partnership for us to be able to offer that,” said Fred Johnson, senior vice president of the residential lending division at Plymouth Savings.

MHFA initiated the contact with Plymouth and several other banks in order to further its mission and “find ways to leverage our capacity to write mortgage insurance to make it attractive to lenders to do things they might not otherwise do,” said Steven Pierce, executive director of the MHFA. Under state law, banks are allowed to make loans for 100 percent of the sales price of a property if they do it in partnership with a public entity like MHFA.

“All over the state we’re having a significant problem both with increasing home prices and increasing rents for apartments. It’s particularly tough in Eastern Massachusetts, a little less so in Western Massachusetts. On the South Shore, the Plymouth area and the Cape in particular, it’s significant,” said Pierce.

The median sales price in Plymouth for a one-family home rose to $190,258 in 2001 from $103,450 in 1995. But the highest increase among the 13 communities included in the program occurred in Duxbury, where the median price for a one-family home is $370,000, an increase of $184,500 from the 1995 price of $185,500, according to statistics compiled by Warren Information Services, a sister company of Banker & Tradesman.

The program is ideal, said Johnson, because it doesn’t rely on the amount a person can save for a down payment. In an example cited by MHFA, a couple earning a combined income of $70,000 with $5,000 in accumulated savings for a 5 percent down payment would be eligible for a maximum mortgage of $95,000. Under the program, no down payment is required and, depending on real estate taxes and homeowners insurance costs, the couple could qualify for a $200,000 mortgage.

“First of all, they can qualify for a lot more house. Rather than being somewhat dependent on the amount of your down payment, you now can qualify for the house based upon your income. You don’t have to worry about the 5 or 10 percent down,” he said.

According to the latest statistics available from the U.S. Census Bureau, the median income for Massachusetts between 1997 and 1999 was $43,697. According to Education Week statistics, teacher salaries in Massachusetts average about $32,502.

“It’s a real problem when people who have grown up in a community or a municipal employee in the community might want to move into the state to work … can’t find housing that they can afford for themselves and their families,” said Pierce.

Local Advantage
Although none of the communities where the program is available have a residency requirement for all of its employees, Pierce said it’s important to have homes available because when a person lives and works in the same community, they feel an “investment and identification with their community.”

After mailing out information to municipal employees about the program, Johnson was hopeful about the success based on the initial inquiries he received.

“You never know how many employees in the cities and towns are actually looking for houses in those cities and towns, so it’s actually dependent on that … We could use up that $5 million in 60 or 90 days. I think that would be very successful.”

Besides meeting the income requirement, buyers must live in the condominium, single-family or two-family home they purchase.

The program may sound similar to the Teacher Next Door/Officer Next Door program run by the U.S. Department of Housing and Urban Development, which offered 50 percent discounts to police officers and teachers as an incentive to live in the communities in which they worked. That program was suspended from April 1 through the end of this month while HUD officials review its policies. At the time of the suspension, nine felony convictions and 15 indictments were pending against people who defrauded the program. The program was used effectively by thousands of other citizens, however.

“We think [our program] is very different. I think any time you have a national program that’s run out of HUD that had servicers that might be thousands of miles away from the people who are actually taking the loan, you do run into an enforcement or an oversight problem,” said Pierce. Applicants for the local program will have to pass a number of tests, including providing documentation as to where they live and work. “We think it’s highly unlikely that it’s going to be abused, whether by way of speculative investment or people that don’t actually live in the community,” said Pierce.

Johnson said if it came to their attention that someone intentionally misled them, then bank officials would take action. That is highly unlikely, however, considering the fact that bank employees are so close to the clients they serve, he said.

At press time, the program had received over a dozen inquiries since its launch the day before. If successful, Johnson said he hopes to repeat the program.

Mortgage Program Keeping Municipal Workers in Town

by Banker & Tradesman time to read: 4 min