Fannie lowers down payments

The government-sponsored mortgage financier says it will require between 3% and 5% for all loans it guarantees.

Last Updated: May 16, 2008: 12:39 PM EDT

WASHINGTON (AP) -- Fannie Mae is doing away with higher minimum down-payment requirements for borrowers in parts of the country where home prices are dropping.

The government-sponsored mortgage finance company said Friday it will require minimum down payments of between 3% and 5% for all loans that it guarantees. That replaces a December policy that required a higher minimum if the loan was for a home in a zip code with declining real estate prices.

Washington-based Fannie (FNM, Fortune 500) says the move is part of its effort to help resuscitate the flagging mortgage market.

Fannie Mae and its smaller sibling, Freddie Mac (FRE, Fortune 500), had been under intense pressure to relax lending policies that had been tightened in recent months as foreclosures and defaults skyrocketed.

Richard Gaylord, president of the National Association of Realtors, said in an April letter to Fannie Mae, that because the health of a housing market can differ widely -- even in the same zip code -- in a particular neighborhood can differ widely, neighborhoods with healthy housing markets are often stigmatized.

Gaylord applauded the decision on Friday. "These new policies will help stabilize the credit markets, which will help encourage buyers to come back into the housing market," he said in a statement.

A Freddie Mac spokesman said the McLean, Va.-based company earlier this month adjusted its policies to make 5 percent down payments available in declining markets. Rather than defining those markets by zip code, Freddie Mac allows appraisers to make that determination, he said.

The announcement comes as lawmakers near a bipartisan agreement on a housing bill that could bring stricter regulation for the two companies. Senators are considering tapping a fund drawn from Fannie and Freddie's profits to pay for a new foreclosure-prevention program.

Congress created Fannie and Freddie to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $5.1 trillion in home-mortgage debt.

Fannie Mae shares fell $80 cents, or 2.60%, to $29.45 in morning trading. Shares of Freddie Mac fell 70 cents, or 2.57%, to $26.57.