Sometimes you can't even pay people to buy a house. At least, that's what Principal Residential Mortgage Inc. says it has found with its down- payment assistance program for low-income buyers.

Since October 1994, the Des Moines-based mortgage bank, which funded $7 billion of home loans last year, has offered to contribute 2% of the home value if borrowers can come up with a 3% down payment.

To qualify, borrowers' income must be less than 80% of the median for their area, and the home must be located in a low-income or minority census tract. Borrowers also must have good credit and stable income histories.

Of the $500,000 Principal sets aside annually for the grants, it has used less than $190,000 in 18 months, according to chief executive Paul F. Bognanno. The money has been used for 193 loans.

Why the meager response?

Mr. Bognanno attributes it in part to popular mistrust of financial institutions.

"People don't believe they can get outright grants with no strings attached," he said.

Principal works with community groups in several cities to spread word of the program, he said. It has been most successful in Houston, Dallas, Denver, Kansas City, Chicago, and in Charlotte, N.C.

Another reason for the lackluster response, Mr. Bognanno said, is that often there are fewer homes available for sale in the neighborhoods Principal is targeting.

Michael Taliefero, managing director of CLC Compliance Technologies Group, a Washington-based consulting firm, said he was not surprised that Principal has had limited response. He said the program is too narrowly targeted and competes with the well-established government FHA program, which insures loans with 3% down payments.

"Low income with good credit, I'm not saying they don't exist, but that market is narrow. What they ought to do is widen that income range to moderate and low income," Mr. Taliefero said.

FHA loans are more likely to appeal to low-income borrowers because they have more-lenient credit standards, he said.

Indeed, Principal's loans do perform better than those insured by the FHA program, Mr. Bognanno said. However, the percentage of loans delinquent 30 days or more is higher than with other conventional mortgages.

Still, Mr. Bognanno said, early indications are that these loans, which are sold to the Federal National Mortgage Association, will perform "reasonably well."

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