Fannie Mae said this week that $1.8 billion of loans have been underwritten by lenders under its low-down-payment program.

Fannie Mae and its rival buyer in the secondary mortgage market, Freddie Mac, have both launched programs to allow borrowers to use funds other than their own to meet the 3% down payment requirement.

Under the programs, the down payment may come from a grant, gift, or loan from a family member, employer, or nonprofit or government agency. No homebuyer counseling is required, and no income limits or geographic restrictions apply for borrowers who seek mortgages of up to the $227,150 conventional loan limit.

The companies are going after first-time homebuyers who have not been able to "tap the market before" and do not have funds to make a down payment, said Frank Demarais, vice president for product development at Fannie Mae. "This market is very deep," he said.

Fannie says the low-down-payment mortgage, available through its automated underwriting system, is one of its most popular products. It says over 750 lenders are using its automated underwriting program.

Freddie Mac said it is purchasing about $200 million of loans each month with loan-to-value ratios above 95%.

The low-down-payment mortgage is popular with lenders because they can get a quick underwriting assessment, and because it is one of the few products that offers borrowers a 3% down payment, Mr. Demarais said.

The nearly $2 billion in loans that Fannie says are being underwritten have yet to close and have yet to be delivered to Fannie's door, he said. But Fannie Mae says its underwriting system has recommended over 15,000 loans to be approved for mortgages.

Of the low-down-payment loans Fannie has already purchased, almost two- thirds were made to first-time homebuyers, Fannie said.

Fannie has offered this low-down-payment mortgage nationwide since June. The product was first tested in 1996 in two markets, and by end of 1997 it had expanded to 28 markets, Mr. Demarais said.

The target audience for Fannie Mae's program is borrowers with good credit but limited savings for the down payment and closing costs, the company said. This population includes low and moderate-income families, minorities, immigrants, among others. Mr. Demarais said the company does not yet have enough data to break down the distribution of the loans among these groups.

Some lenders are offering their own low-down-payment mortgages.

Norwest Mortgage is not offering any of Fannie or Freddie's 3% products. Instead it is offering its own 3% fixed-rate conventional 15- or 30-year mortgage, a product launched in early October, a spokesman said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.