Money Matters - Simplified

How Would You Like a 3.99% Mortgage?

Maybe dirt-cheap financing will get potential home buyers off the picket fence.

Toll Brothers (NYSE: TOL) is offering 30-year mortgages at an attractive 3.99% rate -- with no points -- in a brazen move to smoke out buyers.

Mortgage rates are low, but they are certainly not that low. Bankrate (Nasdaq: RATE) is showing a national overnight average of 5.44% on 30-year home loans this morning.

How Would You Like a 3.99% Mortgage?Get original file (12KB)

Is there a catch? Oh, there are several. Buyers must have credit scores of 720 or greater, pay at least 20% down, and the loans can't be for greater than $417,000. The biggest catch of all, of course, is that a buyer has to be brave enough to weather the trend of slumping home prices and be willing to take a chance.

However, for an industry that has been in a precipitous decline for several quarters, it's certainly worth a shot.

The move is likely to attract math-savvy home buyers. The difference between a $400,000 mortgage at 3.99% and 5.44% breaks out to more than $4,000 a year (before any taxable benefits, naturally).

Toll isn't revealing its funding source. If it is willing to subsidize part of the cost, it will be going where realtors and lenders can't go in the resale market. Sure, desperate sellers may offer owner financing at ridiculous rates, but Toll's effort gives it a nationally-orchestrated effort in moving its digs.

I have certainly been harsh on the home builders. I took shots at Lennar (NYSE: LEN) when its CEO suggested that the government should embark on initiatives to stabilize home prices (which I interpreted as artificially inflating the prices), and when Toll itself followed suit. Why get in the way of gravity when it will simply delay the inevitable?

I even gave Toll the "Throw This Stock Away" tribute two months ago, suggesting that investors looking for real estate plays avoid the home builders and focus instead on companies like Bankrate, Chinese real estate agency E-House (NYSE: EJ), or cash-rich lead generators like ZipRealty (Nasdaq: ZIPR) and Tree.com (Nasdaq: TREE).

However, I have always respected Toll for its healthier balance sheet relative to its overly leveraged competitors. Toll's flexibility is now giving it the opportunity to turn heads with dirt-cheap mortgages. Now let's see if it can turn homes.

Copyright © 2008 Universal Press Syndicate.