The plan, which reportedly could be announced as early as next week, has the potential to dramatically boost the housing market and the faltering economy by stimulating stagnant home sales and significantly lowering monthly mortgage payments for millions of Americans.

The Treasury Department is reportedly considering several plans, including one proposed by the Financial Services Roundtable, a lending industry trade group, that could drop mortgage rates on 30-year loans by about 1 percentage point. Under that group’s plan, the Treasury Department would buy mortgage-backed securities from the government-sponsored entities Fannie Mae and Freddie Mac, which own or guarantee almost half of U.S. home mortgages.

The idea is to restore confidence in mortgage-backed securities, which would encourage banks to make more loans, knowing that they will be able to sell them to the federal government. That should lower the rates on mortgage-backed securities, which in turn should lower mortgage rates.

The lower rates would benefit people buying homes, refinancing existing loans and perhaps even some people who owe more on their homes than they are worth, according to a Roundtable spokesman. It also addresses a widespread concern that the Treasury Department’s $700 billion bailout plan helps only financial companies, not consumers.

But there may be a hitch for some California borrowers because of home values that remain high compared with the rest of the country. Loans here often go over the limits beyond which the two government-sponsored companies can buy or back mortgages. The limit is $729,750 through Dec. 31 and $625,500 in 2009.

It isn’t going to help jumbo borrowers.  Borrowers who owe more than their homes are worth would be helped by a halt in declining home values, but it would be up to banks to decide whether to offer them new loans.

The Treasury Department, Fannie Mae and Freddie Mac would not comment.

But in a speech Monday, Treasury Secretary Henry Paulson said: “The most important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.”

The Federal Reserve announced a similar plan last week, and it drove down interest rates almost immediately to the range of 5.25 percent to 5.375 percent, sparking a surge of interest from homeowners wanting to refinance their mortgages.

The Roundtable sent a letter outlining the proposal to Treasury officials “weeks ago,” said Scott Talbott, a Roundtable spokesman. “It’s something we strongly support,” he said, adding that he didn’t know why news of the plan was coming out now.

It was first reported Wednesday on The Wall Street Journal’s Web site. The Associated Press quoted sources who said a decision could be announced Monday. Details of how the plan would work, and its potential cost to taxpayers, were vague and conflicting; the Journal reported that the plan would help only home buyers.

Talbott said a mortgage rate of 4.5 percent — a level not seen in decades — is the “working plan.”

Although that could potentially help millions of consumers, Kevin Stein of the California Reinvestment Coalition said — based on the sketchy information available — it might have “limited impact” on people in trouble with their loans, and on Californians with large mortgages.

“That said, if it helps some people refinance into lower-cost loans, that is a good thing,” Stein said.

WHAT WOULD IT MEAN TO YOU?

What would a 4.5 percent mortgage interest rate mean for the monthly payment on a $500,000 mortgage currently at 6 percent?*

$2,998 Old payment
- $2,533 New payment
$465 Monthly savings

* Both for 30-year fixed-rate mortgages