SALEM (AP) - The Oregon Housing and Community Services state bond program, which has been financing low-interest home loans to low-income families since 1977, is out of money.

"Right now were on a standby basis," said David Summers, housing finance section manager for OHCS. "For all intents and purposes, we just don't have any cash to invest."

The agency sells mortgage revenue bonds to investors, then uses the proceeds to buy home loans from private lenders.

Lenders, knowing they can sell the mortgages to the state, offer qualified first-time buyers below-market interest rates usually a full percentage point lower than they could get otherwise. The popular program has been financing about 1,300 home loans a year, The Corvallis Gazette Times said.

"That's worked very, very well for 30 years because we could borrow money on a tax-exempt basis," Summers said. "We could borrow money to fund those loans cheaper than our competition."

But now Oregon has been priced out of the market.

Investors, spooked by the subprime mortgage crisis, are demanding higher yields for mortgage-backed bonds even when the mortgages are fully insured, fixed-rate loans, as is the case with all home loans made with Oregon bond funds.

"It's guilt by association," Summers said.

He said the same thing is happening in other states.

But he said there is no default danger for the $1.1 billion in outstanding home mortgages currently backed by the state bond program .

But for cash-strapped Oregonians struggling to make the leap from renting to owning, the loan programs suspension is a setback.

The state bond program is not the only form of assistance for first-time buyers, said Lyndora Taylor, director of real estate services for the Oregon State University Federal Credit Union. But it was one of the best especially for people with limited resources.

One loan offered by the state, called CashAdvantage, kicked in 3 percent of the mortgage value as down payment assistance and financed the rest.

"Now that 97 percent loan is essentially unavailable in the market," Taylor said. "They have to come up with more money down."

Summers said his department recognizes the need to get the state bond program up and running again.

"Everybody's scrambling because we know how important this product is to the state," he said. "That's the bottom line."

But before any state can start pumping money into low-interest mortgages again the bond markets have to return to normal, or the federal government has to intervene.

"One thing we've heard is that the federal Treasury may start purchasing these bonds directly at a rate that would allow the states to start lending money again," Summers said.

"If the feds started buying Oregon bonds at 4 percent next week, you know we'd start buying loans again."