Mortgages With No Money Down Still Available

Both companies are required to devote certain percentages of their funding to what the government defines as affordable housing. Depending on the recipient, no-money-down or low-down-payment loans can help the companies meet those quotas.

One reason buyers borrow more than the purchase price is to cover transaction costs.

Fannie Mae's Muse-Evans said many buyers want to stay in their homes for five years or longer, and Fannie Mae expects the housing market to stabilize by then.

In the meantime, Fannie Mae and Freddie Mac have been predicting further price declines. Those drops could put borrowers who make no down payments even deeper under water and wipe out the equity of borrowers who put some money down.

Freddie Mac chief executive Richard F. Syron said last month that nationally, average home prices have fallen 9 percent from their peak, and Freddie Mac expects them to fall at least 15 percent.

How many no-money-down purchases are taking place these days isn't clear.

"We see them pretty frequently," said Steven Tuminaro, director of public policy and legislative affairs for NeighborWorks America, a nonprofit group created by Congress.

Judy Kennedy, president of the National Association of Affordable Housing Lenders, canvassed some members of her group and said they were seeking minimum down payments of 2.5 or 3 percent because they were afraid of the borrower becoming "a victim of the declining values."

The volume of loans with no down payments can be affected by the availability of mortgage insurance policies used to protect Fannie Mae and Freddie Mac from losses if the borrower defaults. The meltdown in the housing market has put mortgage insurers under greater stress and prompted them to tighten standards.

"I don't have specific numbers, but . . . it's just intuitive that a lot of the activity has fallen off in light of what's going on" with the mortgage insurers, said Freddie Mac spokesman Brad German.

Kennedy said responsible loans can be made with no money down when borrowers have expert support from nonprofit groups. If borrowers get in trouble, some of those groups will help them make their payments, Kennedy said.

Fannie Mae mentioned the continued availability of 105 percent financing last month in a news release announcing that it was abandoning a policy that required extra down payments in markets where home prices were declining. The company's new policy allows buyers to borrow up to 97 percent of the purchase price with conventional mortgages.

Even as it eased the requirement, Fannie Mae said in the news release that down payments "are a critical success factor in homeownership."