How will the U. S. government withdraw support of the mortgage market without toppling the nation’s fragile housing recovery in the process?

Last year, the government rescued the mortgage sector by pumping more than $1 trillion into home loans. Now the government has effective control of the housing market, either owning or guaranteeing an estimated 9 out of 10 new mortgages. So pressure is building on the Obama administration to scale back a variety of stimulus efforts, including help with these mortgages.

Last week, Federal Reserve Chairman Ben Bernanke talked only vaguely about when the central bank might act, sprinkling his remakrs with phrases such as “in due course” and “at some point.”

The plan to scale back support carries an inherent risk for the housing market. A pullback could stall the very housing recovery that the government has worked so hard to jump-start.”We understand that the stimulus can’t continue forever, but at the same time, trying to get the housingn market back on track is key to a broader economic recovery,” said Lawrence Yun, chief economist for the National Association of Realtors.

The Fed plans to end a $1.25 trillion mortgage-bond-purchase program that has helped keep mortgage interest rates near a record-low 5%. The Fed has been buying virtually all of the mortgage bonds offered by Fannie Mae and Freddie Mac, replacinigt private investors such as pension funds and mutual funds that have shied away since the subprime kmortgage crisis. That exit is expected to push up rates.

The Mortgage Bankers Association, predicts the end of the Fed mortgage-bond program could push rates up by roughly .5%. Even a moderate rise could push potential buyers out of the market. Higher rates could force many others to recalculate where to live or what to purchase.

This news is one more reason why buyers should consider buying in the next few months while interest rates are still low.

The Treasury Department and the Federal Reserve Board have been purchasing mortgage-backed securities from Fannie Mae and Freddie Mac for a little over a year. These efforts have helped bring down long-term interest rates and provide the housing industry with some price stabilization. Recently, some National Brokers have discussed the likeliness of the Federal Government backing away from this program and what effect that would have on the marketplace.

These brokers believe that even if Federal purchases of these securities were to go away, that interest rates would only rise negligibly — to maybe as high as 6%. That would still be an historically low rate and probably would not be enough of a hardship to slow down sales — especially if job losses continue to fall and employment begins to rise.

So if the economy continues in the right direction, consumers will begin to act and buy more houses, the brokers believe. They also believe that they would rather be selling houses than selling anything else in 2010!