The government's effort to prop up dwindling home values by reducing mortgage rates is aimed at jump-starting the housing market, but it is getting a mixed reception from industry participants.

Some bankers and observers say lower rates are already helping to clear housing inventory, particularly foreclosed properties, but others say banks remain leery about lending in general, because of mounting concerns about the economy. Still others say the government should allow the housing market to correct itself.

John G. Stumpf, the chief executive officer and president of Wells Fargo & Co., said low rates already appear to be contributing to at least a short-term bump in interest among buyers in California, one of the states hit hardest by the housing slump.

"We're now seeing multiple bids" for foreclosed properties there, Mr. Stumpf said Wednesday at a conference in New York, and even lower mortgage rates might accelerate the trend.

The most recent plan floated by the Treasury Department would push fixed rates to a historical low. The goal is to ignite a surge in home sales that would stabilize values, curb losses to household wealth, and boost the economy.

Some bankers and economists say attractive interest rates alone will not clear the glut of unsold homes in states such as California, Florida, and Nevada, where prices soared beyond the means of the average buyer and are still falling back toward affordable levels. Also, rapidly rising unemployment could overshadow lower housing costs, bankers said.

"If you're unemployed, you can't pay, no matter what the rate is," Ronald E. Hermance Jr., the chairman and CEO of the $52 billion-asset Hudson City Bancorp Inc. in Paramus, N.J., said in an interview Tuesday. He based his assessment on his experiences with his own customers, along with conversations with other bankers.

Hudson City is one of about 20 companies contacted by American Banker for this story, including most of the 10 largest. Three companies would not discuss the matter, and other than Hudson City, the rest did not respond to requests for interviews.

"It's not a matter of rate; it's a matter of confidence in the marketplace," Mr. Hermance said. "I really don't think there is a pent-up demand among new buyers out there. People have seen prices fall, and most are waiting to see if they fall even more … and in some overheated areas, they need to."

Mr. Stumpf said that even though "we might be getting closer to the bottom" in housing, continued job losses next year — the unemployment rate has risen steadily the second half of this year — could trump any positive trends on the housing front.

"Jobs is the name of the game," he said. "That's what I'm worried about."

James Gaines, an economist at Texas A&M University's Real Estate Center, said in an interview Monday that bankers might actually be better off if the government allowed for a market-driven housing correction, despite the pain that may cause for some homeowners.

"Nothing changes the fact that we need more time for prices to come down," he said.

If the government wanted to help buyers qualify for good loans, it could complement low interest rates with an up-front tax credit that buyers could use to cover closing costs and a big chunk of the down payment, Mr. Gaines said. "But I don't think interest rates alone are that big of a deal, because the market is not as interest rate driven as it once was. If we were at 9% or 10% on mortgage rates, cutting that in half could be a big deal, but we're under 6% already. So cutting rates to 4.5% won't hurt, but it won't have anywhere near the impact the market needs."

At issue is a plan being considered by the Treasury to drive the rates for new mortgages as low as 4.5% — a full percentage point below today's going rate — by purchasing 30-year fixed-rate mortgage-backed securities from Fannie Mae and Freddie Mac.

The Federal Reserve Board made a similar move last month to buy up to $500 billion of securities backed by Fannie, Freddie, and the Government National Mortgage Association. The Fed also said it would buy $100 billion of direct debt issued by the government-sponsored enterprises.

Despite the government's implicit guarantee of Fannie and Freddie debt, the gulf between the Treasury yields and the rates for mortgage assets has grown this year. The government's goal is to shrink that divide, bring rates down, and curb the housing downfall by gobble up assets directly.

A record 10% of U.S. mortgages were at least a month overdue or in foreclosure at the end of the third quarter, according to federal estimates.

Richard B. Hoey, chief economist at Bank of New York Mellon Corp., wrote in a report released this week that government efforts to drive down rates "are proactive steps to improve housing affordability" — and necessary ones, because falling home values have created "a negative wealth effect for homeowners, contributing to weakness in their spending" and hurting the broader economy.

Lowering rates to 4.5% could lead to 500,000 home sales over the next year and carve into the 4.6 million unsold homes sitting on the market, according to the National Association of Realtors. Currently , there is a 10-month supply of homes for sale; a supply of about six months is considered normal.

The effects of a rate reduction "would be huge," Richard J. DeKaser, chief economist at National City Corp., said in an interview Tuesday. "That's the kind of very low rate that would dramatically improve affordability for many, many buyers."

This argument is based on the assumption that, even if people were concerned about further drops in home prices next year, the savings gained on a historically low fixed rate would override those concerns.

Others said that is not a wise assumption.

Given bankers' newfound appreciation of risk management, Mr. Gaines said, low rates alone will not be enough to ramp up lending, because many would-be buyers cannot afford the more strict terms most lenders are imposing, including minimum down payments of up to 20%.

Proponents and skeptics alike agree that the Treasury appears convinced it has to take new action to address housing weakness.

"Otherwise, if they're just floating out an idea to reduce rates just to see the reaction, well, they're taking a pretty big risk that the markets will react very negatively if the government doesn't follow through and actually push down rates — or do even more," Mr. DeKaser said.

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