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Published in Print: May 16, 2001, as Freddie Mac To Expand Zero-Down Teacher Housing

Freddie Mac To Expand Zero-Down Teacher Housing

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Freddie Mac is seeking partnerships with teacher-retirement systems around the country to build an innovative program that provides teachers and other school employees with zero-down-payment mortgages, a service the housing-finance company now offers in California.

The CalSTRS Home Loan Program, unveiled last spring, was the first in the nation to involve public pension funds, and aims to help lower- or middle- income employees afford their own homes, said Dwight Robinson, a spokesman for Freddie Mac, based in McLean, Va. The congressionally chartered corporation packages mortgages and sells them to investors as a way to maintain a supply of affordable housing.

The CalSTRS program has become so popular in the Golden State that the company aims to duplicate the effort in other parts of the country where modestly paid educators and other school workers often find homeownership out of reach.

Such an effort works to recruit and retain educators during a time of teacher shortages and brings stability to the communities where they live, Mr. Robinson added.

"When we launched this program in 2000, we said we would do $100 million in loans over the next few years," he said. "We financed $400 million of teacher mortgages in 12 months— that's 40 percent more activity than we expected."

To date, more than 1,400 people in California have taken advantage of the opportunity, he said. Some 661,000 currently employed or retired school employees are eligible for the program there.

Two Loans

The program is a good deal for teachers and others, Mr. Robinson said, because they aren't required to make a down payment on a house, a cost that can run to thousands of dollars.

Under the California model, participants are required to take out two loans, he said. The first, which covers 95 percent of the cost of the home, must come from a credit union or commercial lender and be paid back in monthly mortgage installments. Those bank loans are purchased by Freddie Mac.

The second loan is picked up by the California State Teachers' Retirement System, or CalSTRS, and goes toward the down payment, Mr. Robinson said. It does not have to be repaid until the home is sold.

A state's employee pension plan for teachers would have to agree to participate in order for the program to work in individual states.

Essentially, the program increases a teacher's buying power by about 25 percent, said Brad German, a spokesman for Freddie Mac.

"The zero-down option is an overwhelming success," Gary Lynes, the chairman of the board of California's retirement system, said in a statement. "The ultimate result will allow California to better address the need to recruit and retain teachers in the classroom."

The high cost of living in many regions of the country dissuades many educators from relocating or staying in the profession, added Robert J. Reid, a member of the board of directors for the Center for Housing Policy. The center is the national research affiliate of the Washington-based National Housing Conference, a nonprofit membership organization that promotes high-quality affordable housing.

In San Diego, for example, the average income of an educator is $45,000, while the amount needed upfront to buy a two- bedroom house averages $69,000.

Many states and districts are offering various incentives in an attempt to attract and keep teachers. The U.S. Department of Housing and Urban Development began offering teachers breaks on houses last year, but recently suspended the program because of fraud and abuse by police officers, who also were eligible for the program. ("HUD Suspends Housing Program for Teachers," April 11, 2001.)

Vol. 20, Issue 36, Page 9

Web Resources
  • Learn about the role Freddie Mac plays in federal housing funding.
  • Freddie Mac released a statement about CalSTRS' success in its first year.
  • The federal Housing and Urban Development agency has halted their Teacher Next Door program.
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