Americans used to pride themselves on putting large down payments against their homes and watching their investment grow. Not anymore.

In a shift that could permanently transform the way mortgages are written, a rising number of homebuyers are making only small down payments - sometimes as little as 3% Simply put, many young families are turning to low down payments to make their dreams come true. With home prices rising faster than incomes, these people are unable to make traditional, 10% or 20% down payments. And, increasingly, they are unwilling to lower their standards for homes.

The buyers "don't want to buy a starter home," said Jeff Bond, director of community lending at California's Cenfed Bank. "They want their parents' house or their friend's house, without any time to trade up. So we're seeing [loan-to-value ratios] rising."

Five years ago, some 7% of all new mortgages were for amounts greater than 90% of the property value. Now, federal data show, 24% of originations feature such low down payments.

The change, experts say, reflects a fundamental shift in how consumers feel about financing homes.

The attitude today is "Gimme the house now, and I'll worry about the debt later," said Angelo Mozilo, chairman of Countrywide Credit Industries, the nation's largest mortgage lender.

Meanwhile, regulatory pressure on lenders to serve more low-income borrowers is reinforcing the trend. To lend to people of modest means, the industry has little choice but to relax its down payment standards.

Other borrowers may be going for big mortgages simply to take advantage of tax-law changes that, have left home loans as the only tax-deductible consumer debt.

All these forces are unlikely to abate anytime soon.

"Throughout the remainder of this decade, the trend toward low-down-payment mortgages will be more permanent than cyclical," said Gordon Steinbach, executive vice president of affordable housing at Mortgage Guaranty Insurance Corp. in Milwaukee.

Certainly, few people in the mortgage industry are ignoring the surge in these loans. Many are taking steps both to profit from the trend and to make sure they don't get burned.

"There would appear, generally speaking, to be a relationship between down payment and delinquency rate," said Nicolas P. Retsinas, who heads the Federal Housing Administration, which pioneered 3%-down loans in the 1980s.

"It's how the risk is priced, how the risk is measured . . . and managed, that is important."

Fannie Mae and Freddie Mac, the dueling giants of the secondary market, have both started requiring more mortgage insurance for loans with down payments of less than 15%.

While that could add to costs for consumers, another step taken by Fannie Mae is likely to boost the popularity of low down payment loans; The agency, formally the Federal National Mortgage Association, announced that it would buy more than $5 billion of mortgages with down payments of just 3%, The previous minimum was 5%.

Some lenders, meanwhile, are openly questioning the industry's old assumptions about the need for hefty down payments.

Mr. Mozilo of Countrywide said as long as lenders use responsible credit standards, there's "not much difference between putting 5% down, and 3% down, and 0% down."

"If there's going to be a problem on a loan, it will be [due to problems related to! health, a marriage breakup, or job, not LTV," Mr. Mozilo said.

Mortgage insurers, who assume default risk on many loans with high loan-to-value ratios, have also supported the trend. After several years of tightening credit standards and raising insurance premiums to cope with losses in the 1980s, "there is a receptivity to taking high-ratio business," said Mr. Steinbach of MGIC.

To be sure, at least some of the popularity of low down payments may prove ephemeral. Experts point out that the trend has been driven in part by this year's rise in interest rates, which has curbed mortgage demand and heightened competition among lenders. Companies are suddenly fighting for loans they might have avoided just six months ago.

Moreover, the rise in rates has caused loans for home purchases to greatly outnumber refinancings. In purchase markets, loan to value ratios typically rise, lenders and analysts say.

That's because buyers typically don't have the equity that refinancing customers have built up in their homes.

But even if rates were to start failing, there would be plenty of reasons why down payments would not surge.

"A lot of people simply can't afford homes," said Sung Won Sohn, chief economist at Norwest Bank.

Over the past five years, median home prices have climbed 18% - but median family incomes have risen by just 13%.

Paradoxically, the incidence of low down payments has risen in the 1990s partly because lower interest rates have translated into smaller monthly payments for borrowers, said Mr. Steinbach.

In the 1980s, he pointed out, rates were so high that many borrowers simply couldn't afford monthly mortgage payments.

Now, with lower rates, prospective borrowers find they can make the monthly payments, but still don't have enough set aside for large down payments.

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