With little fanfare, the U.S. government has rapidly become the nation’s top backer of mortgages that require little or no money down, with taxpayer guarantees on them surpassing $1 trillion earlier this year, a FOX Business analysis shows.  

“Zero down” mortgages as high as $1 million have been backed by the Department of Veterans Affairs, which by law offers most of its loans with no down payment required. Such “no money down” jumbo loans were approved in higher-cost housing markets, VA officials said. The average VA loan is $207,000.

The Federal Housing Administration alone has expanded loan guarantees to $865 billion in June, including some refinancings of existing loans – almost double the 2007 level -- according to an agency report.

Such low- or no-down-payment loans, along with falling interest rates, have helped millions of low- and moderate-income homebuyers who might otherwise not have gotten a loan. But some housing-finance experts warn “affordable” mortgage programs at the VA, FHA and Department of Agriculture could be laying the groundwork for another housing crisis -- and additional taxpayer bailouts.

“You could have any number of things that trigger high default rates, and the risk on those loans is entirely with the federal government,” said Edward Pinto, a housing consultant and former Fannie Mae executive. “It's inevitable that government insurance programs are going to hit the wall at some point.” 

The Treasury Department has already pumped $145 billion into failed mortgage giants Fannie Mae and Freddie Mac, which generally have insured traditional “prime” loans requiring a 20% down payment and which themselves own or guarantee about $5 trillion in mortgages. 

Hundreds of thousands of the low/no-down-payment mortgages are already in default or foreclosure, most of them at the FHA, which is scrambling to avoid a bailout. 

And though officials insist that, to protect taxpayers, lending standards are tighter than ever, government auditors in September reported slack loan underwriting at the USDA’s “no money down” mortgage program that aids rural homebuyers. 

Regardless, Congress and the White House, under both the Bush and Obama administrations, have supported significant expansions of the FHA, VA and USDA programs. Officials say they’re necessary to provide mortgage financing in tight credit markets and to help bolster the shaky housing sector. 

“Home prices were in a free-fall” a year ago, FHA Commissioner David Stevens said. “Our ability to step in, in a counter-cyclical way, has been absolutely fundamental to stabilizing home values.” 

Collectively, the FHA, VA and USDA now insure about eight million home loans. They were underwritten by commercial banks and other lenders; the agencies pay them principal and interest when a homeowner doesn’t. The agencies charge homebuyers upfront fees of 2% or so to help finance their programs.

The FHA also usually requires a minimum down payment of 3.5% and, unlike the other programs, adds a premium of about 0.5% to homeowners’ monthly payments to also cover costs. 

Borrowers in all three programs must meet certain income, credit and debt standards to qualify. FHA and VA loans limits are higher – maxing out at $1.1 million in a handful of isolated high-cost counties – while USDA loan limits are lower. 

Historically, the programs’ guarantees have expanded and contracted with recessions and recoveries, depending on how active private lenders are in mortgage markets. 

During the recent housing bubble, banks, mortgage lenders and investors made sure homebuyers got plenty of easy loans – with the now-infamous, non-traditional “subprime,” “Alt-A” and “Option ARM” loans, to name a few.  

But when the bubble popped, stunned private lenders, facing big losses, pulled back. Anxious politicians stepped in, expanding the FHA, VA and USDA programs to new highs, so constituents could keep buying homes and the housing industry could keep workers working. Policymakers also raised loan limits, to allow the agencies to insure bigger mortgages and expand their portfolios even more.  

Real estate brokers, homebuilders and mortgage lenders have consistently lobbied for the moves.  

The FHA program is the largest of the three. VA guarantees outstanding have been steady at about $200 billion annually, even during the housing bubble. But the Administration projects they will hit $293 billion by next year.   

“We’ve seen a dramatic increase in originations,” said Mike Frueh, a VA mortgage program official. He added that VA loans are for “young men and women who have served their country.”  

USDA loan guarantees outstanding have nearly tripled, to $47 billion currently, from $17.1 billion in 2007, according to a department official. The VA also operates a $10 billion-plus program that makes direct loans to lower-income rural buyers with interest rates subsidized to as low as 1%. 

“We are pretty much the only game in town” for rural homeowners seeking mortgages now, said the USDA official, who agreed to discuss his department’s program on the condition he not be identified. 

In the first quarter of 2010, the FHA and VA alone insured $56 billion in new “low/no money down” home loans, according to Inside Mortgage Finance. They accounted for nearly half of all new mortgages underwritten by lenders in the quarter, including those requiring traditional 20% down payments. That’s up from less than 10% of all new loans before the housing bubble popped in 2007. 

The Obama Administration projects loan guarantees at the FHA, VA and USDA will grow by another $182 billion in fiscal 2011. 

Between Fannie, Freddie and the agencies, the federal government is now guaranteeing about 95% of all new mortgages, including refinanced loans, according to Inside Mortgage Finance. 

“At today’s very low 30-year mortgage rates, banks bear too much interest-rate risk” to assure loans are profitable for lenders long-term, said Bob Davis, executive vice president at the American Bankers Association. “The choice is either to make no loans, or make loans guaranteed (by) Fannie, Freddie, FHA, VA or USDA programs.” 

As with Fannie and Freddie, defaults and foreclosures in the agency programs have been rising, mainly due to continued high unemployment, generating growing loan losses. 

The Mortgage Bankers Association reports that for the FHA, “seriously delinquent” home loans – those more than 90 days past due or in foreclosure – rose to 9.1% in the first quarter of 2010, up from 5.3% in the first quarter of 2007. Seriously delinquent VA loans doubled to 5.3% over the same period.  

The association doesn’t break out USDA loans, but a USDA presentation obtained by Fox Business shows foreclosures in its guarantee program rose to about 4% in April, from about 3% in early 2007.

By comparison, seriously delinquent “prime” mortgages with standard 20% down payments hit 7.1% in the first quarter of the year, up from about 1% three years ago, according to the MBA. For “subprime” loans—generally mortgages with lower down payments at higher interest rates and fees made to borrowers with poorer credit histories -- the rate was 30.2%, up from 8.3% in 2007. 

Of the three programs, the FHA faces the most serious financial challenges because of its size and underwriting history. It insured piles of dicey loans in 2005, 2006, 2007 and 2008 that have been going bad. Last year, an independent auditor found about a $10 billion shortfall in the FHA’s Congressionally-mandated capital reserve fund. 

The agency insists its finances are sound, at least for now. To help it avoid a taxpayer bailout, it has raised upfront loan fees, tightened standards for borrowers and lenders, and has asked Congress for the authority to raise premiums in homeowners’ monthly payments. 

“At this point…there’s no taxpayer bailout,” FHA’s Stevens said. “We'll do an actuarial (analysis) at the end of the year…We’ll see how the fund is looking at that time. I can tell you factually, right now, that our portfolio reserves are growing. They were forecasted to be dropping, but they are actually increasing.” 

But Stevens acknowledged FHA’s financial future depends on housing prices, which have dropped about 30% since the housing bubble popped, according to the S&P/Case-Shiller Home Price Index. 

“If we stabilize the markets and begin to recover, that (FHA) portfolio can begin to look a lot better,” he said. “If the markets don't recover as quickly, then there's additional loss risk to FHA. But at this point, all forecasts say no.” 

Pinto, the former Fannie Mae executive, believes the FHA faces “tens of billions” in losses within several years. “They’ve bought themselves some time,” he said, with recent operating changes as well as low interest rates and expansion of its portfolio, which generates income.   

VA officials attributed the lower default and foreclosure rates in their program to adherence to strict lending standards and appraisal requirements, homeowner counseling programs and mortgage modifications, when appropriate. VA officials said they make 30,000 “contacts” each month -- phone calls, emails and more -- to help financially struggling veterans. 

Since 1992, when the department began tracking its financing, the program has been operating without requiring extra funding over its regular annual appropriation, which is budgeted at $191 million in fiscal 2011, officials said.  

The USDA official made similar comments about his department’s program. But the department projects $193 million in losses this year, three times the losses it reported in 2007. 

Also, government auditors last year criticized a $10.5 billion expansion of the USDA program included in the Administration’s stimulus package.  

The auditors’ comments echoed criticisms of some mortgage lending practices during the housing bubble: Among other things, they found that the agency failed to require lenders to submit “documentation to support borrower loan eligibility,” “noncompliance” by field staff and lenders with program debt requirements, and “insufficient lender oversight” of mortgage brokers participating in the program. 

The department “generally agreed” with the findings, the audit report said, and proposed “corrective actions” to fix the problems.   

Stevens says that he thinks that at “the end of the day, taxpayers were at risk one way or the other,” with potential losses in expanding FHA, VA and USDA guarantee programs--or more losses in home values absent the aggressive government intervention in the housing market. 

“Had the Administration not stepped in fundamentally…the outcome would have been far worse, without question,” Stevens said. 

Stevens also said the Administration will contract his and the other programs, as well as reform Fannie and Freddie, once housing markets heal. 

“This administration is completely committed…to having a balanced financial services market where private capital re-emerges,” he said. “We’re doing a lot of things to try to head in that direction.” 

Pinto is skeptical. 

“Are they really going to back off on this? They say they are--Dave Stevens says he will, and he means that,” Pinto said. “But will Congress let him? Will the homebuyers let him? Will the Realtors let him? Because at the end of the day, the homebuilders and the Realtors like leverage—they like low down payment loans. And they’re going to be loath to give them up.”