Mortgage rates edge up slightly

The benchmark 30-year, fixed-rate mortgage edged up 4 basis points, to 5.8 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 45 discount and origination points. One year ago, the mortgage index was 6.62 percent; four weeks ago, it was 5.45 percent.

Also in Bankrate's weekly survey, the benchmark 15-year, fixed-rate mortgage dipped 3 basis points, to 5.16 percent. The benchmark 5/1 adjustable-rate mortgage declined 11 basis points, to 5.26 percent.

Last week's dip in mortgage rates appears to have spurred both new mortgage and mortgage refinance activity, with applications increasing a seasonally adjusted 6.6 percent for the week ending June 19, according to the Mortgage Bankers Association.

When compared with one week earlier, applications for new purchases jumped 7.3 percent, the biggest one-week percentage gain since early April. Refinance activity increased 5.9 percent.

This week's rise follows four weeks of sharp declines in mortgage activity.

Homebuyer tax credits proposed

Washington lawmakers have proposed several separate bills laced with housing incentives. The plans differ, but key elements include:

• Near doubling of tax credit. Sen. Johnny Isakson, R-Ga., has introduced a bill that would sweeten the current $8,000 homebuyer tax credit to $15,000. The bill has picked up a slew of co-sponsors, including Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee. 
• Expanded pool of eligible purchasers. Isakson also wants to allow "any buyer of any home" -- including move-up buyers and purchasers at every income level -- to claim the tax credit. Currently, the credit is restricted to first-time purchasers. Two House bills also propose expanding credit eligibility to all homebuyers.
• Extended tax credit deadline. Various proposals would keep the first-time homebuyer tax credit alive through at least mid-2010. Right now, the credit is scheduled to expire at the end of the year.
• New refinance tax credit. Rep. Kenny Marchant, R-Texas, has introduced a bill to give a $3,000 tax credit to homebuyers who refinance the mortgage on their primary residence. Marchant champions the credit as a free-market-friendly approach that helps people refinance "without picking winners and losers."

Mortgage consultant Michael Becker says he generally likes the policies under consideration.

"I am for any proposal that helps stop the bleeding when it comes to housing values," says Becker, who works for Green Pastures Mortgage and Finance in Lutherville, Md.

Mortgage pros weigh in

"Unemployment probably won't stabilize until next year, so extending the time frame for the tax credit would encourage more homebuyers to enter the market once the economy starts to recover," he says.

Other mortgage professionals agree the proposed legislation would likely provide at least a modest boost to mortgage activity.

"The more of this kind of thing Uncle Sam does, the sooner we'll get the overall supply of housing inventory down to a manageable level," says Mike Larson, a real estate analyst with Weiss Research in Jupiter, Fla.

Dick Lepre, senior loan officer at Residential Pacific Mortgage in San Francisco, says, "In the short term, any of these (proposals) helps the housing market."

"The greatest short-term benefit to the housing market would come from giving the largest possible tax credits to as large a group of buyers as possible," he says.

The proposed $3,000 tax credit for homeowners who refinance intrigues Brian Peart, president of Nexus Financial Group in Atlanta.

"I like it," Peart says. "(It) could help them to justify the closing costs."

Too much government

"As a country, we are dramatically subsidizing the industry already," says Larson, citing existing tax credits and other policies, including the Federal Reserve's ongoing campaign to purchase $1.25 trillion in mortgage-backed securities and $300 billion in long-term Treasury bonds. "At what point do you say, 'Enough is enough,' especially at a time when the federal budget deficit is closing in on the $2 trillion mark."

Larson also argues that while tax credits may help boost sales, other factors are "much more powerful catalysts for recovery."

"If rates stay low, the job market improves and affordability remains at these higher levels, people will buy more homes," Larson says. "If those positives go away, buying will dry up."

Becker dislikes the $3,000 credit for refinancing, which he says would "bring out the worst in this industry."

"I can see all of the cheesy commercials now, touting the tax break from the government, encouraging people to refinance just to get the tax credit even though it barely lowers their payment," he says.

Meanwhile, Lepre contends a strong economic case can be made for not intervening in the market and instead "simply letting housing prices settle at more natural market prices."

Peart shares some of his colleagues' misgivings about the government's activist role. "I am not very bullish on government intervention, to be honest," he says.

However, he also sees value in government efforts to find solutions to the worst national housing downturn in decades. "I think these proposals have merit, and the government is doing what they can in regards to housing," he says.

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