Low mortgage rate idea has fans in region

If you remember the last time you could take out a fixed-rate mortgage at an interest rate of 4.5 percent, you are likely in your late 60s or older.

It was April 1953.

Yet that is exactly what the federal government might be inching toward as a solution to the nation's overabundance of granite countertops under barrel-tile roofs.

In what could be the "shock-and-awe" moment for the suffering residential real estate business, the Treasury Department is strongly considering a plan to buy down rates from the already low 5.5-percent range that it engendered through a multibillion-dollar program announced last week.

The latest salvo has even those generally skeptical about the government's attempts so far to thaw the housing market seeing potential.

"That would go a long way toward priming the pump," said Michael Saunders, founder of the Sarasota real estate firm that bears her name. She thinks the Treasury should also put a one-year limit on the deal.

"And these people who are just sitting on the fence would say, 'OK, I've only got a year, and I'm going to get a 41/2Unknow n consequences

There is reason for caution, however. This latest proposal -- in what has become a seemingly endless series of stimulus plans -- remains a trial balloon.

Nothing official has been announced, though the government has been under growing pressure to address falling home prices and the foreclosure phenomenon.

"It is the rumor of the potential of a plan based on a leaked discussion, with an arbitrary interest rate," said Keith Gumbinger, a mortgage market commentator at financial publisher HSH Associates in Washington.

Unlike the Treasury-Fed plan announced Nov. 26, in which the Fed aimed roughly $500 billion directly at lowering all conventional mortgage rates, this latest plan to directly buy down purchase-money loans is quite tentative and would probably require congressional approval, he said.

Gumbinger points out that there is no clue how long this window to the past would be open for borrowers, or how much money would be thrown into the effort.

"There is nothing to flesh out the plan," he said.

Worse, the leakage from Washington's economic laboratory could have the unintended consequence of dampening the response to the rate-cutting plan unveiled last week -- one which actually seemed to be working, Gumbinger said.

After the Fed committed to buying mortgage paper using seed money from the Treasury, open-market mortgage rates responded immediately by falling half to five-eighths of a percentage point.

"Mortgage rates are now firmly entrenched in the fives and borrowers are responding appropriately," Gumbinger said. "We had a near tripling of refi-commitments and a 20 percent pop for home purchases. That is very important."

"And then this morning comes this screaming headline that says 4.5 percent might be coming," he said. "Why in hell am I going to go out in the marketplace today?"

Putting Realtors to work?

But the real estate community was understandably cheerful about the prospect of 4.5 percent mortgages, even if they might not show up until the Bush administration has packed up and gone home.

"I'm calling it the 'Employment for Realtors Act,'" said Holden Lewis, a senior reporter at BankRate.com of North Palm Beach. "A lot of Realtors don't have much work to do right now."

It was Realogy Inc., parent company of NRT and its vast chain of Coldwell Banker real estate offices, that first pitched a short-term government buy-down of mortgage rates to Treasury.

Since then, the National Association of Realtors has tacked the buy-down onto its own existing "four-point housing stimulus plan."

"I think everybody is under the realization that housing is such a critical component to any economic recovery that something needs to be done," said Budge Huskey, a Realogy executive vice president who oversees all the Coldwell Banker offices in Florida, Georgia and Texas.

Huskey said that he and another Realogy executive, Alex Perillo, were involved in formal NAR meetings held in Orlando recently "where this was a big topic of discussion."

Realogy's proposal, which is considerably more detailed than this week's leaks, called for a short-term government buy-down of mortgage rates to at least 4.5 percent or lower for 30-year fixed rate mortgages. At the time it was first discussed and until last week's big Treasury/Federal Reserve buy-down announcement, rates on those loans had been hovering at just above 6 percent.

The incentive would apply to the purchase of all new and existing homes sold, up to $1 million in price. Realogy acknowledged that it was "working with a a number of other organizations to carry this message forward."

In addition to the unknowns of time limit and amount, the Treasury Department plan seems to exclude mortgages aimed at refinancing existing loans, and is aimed only at purchase money mortgages.

If Saunders ruled the world, the proposed 4.5 percent rate would work on refinancings too.

"Think of the money that would put into the economy," she said. "People who are right now current, if they could get more discretionary income to go out and be a consumer again, how exciting would that be?"