Home buyers and sellers who've been banking on the U.S. Supreme Court to ratify their rights to creative-mortgage financing shouldn't get their hopes up.

In fact, from the tenor of the justices' comments last week, creative financing could be in for a setback later this spring.

The court heard oral arguments on the first major legal test of the emotionally charged mortgage-assumption issue. The case (Fidelity Federal Savings & Loan Association v. Reginald de la Cuesta) involves California's pro-consumer statute. It permits home loans to be assumed (taken over) at their original rates, unless lenders' security interests in the property are harmed by the assumption.

In effect, California law guarantees buyers' and sellers' rights to pass on cut-rate, long-term deeds of trust in most situations--thereby making homes more readily salable in a tough economy like the present. The California statute, according to the state's highest courts, applies even if borrowers' mortgage documents contain language empowering lenders to "call" loans, or raise their rate without limit, to block assumptions at resales.

Not surprisingly, lenders have been apoplectic about California's law. They've also been outraged by legislative and court actions in 16 other states that restrict their so-called "due-on-sale" powers.

Federally chartered S&Ls, in particular, have fought back in court, challenging the right of any state to tell them how to run their mortgage business. Only the federal government has that right, they claim. The case argued before the Supreme Court last week is a product of that industry-wide challenge. S&Ls appealed a California decision, hoping to get a more sympathetic ruling on the issue from the top federal court.

They may get their wish before summer. Although forecasting Supreme Court decisions is hazardous at best, the comments and questions of the justices weren't encouraging to creative financers. (Even the lead attorney battling the S&Ls, Fred Crane of Riverside, Calif., conceded as much after the hearing.)

Two justices--William H. Rehnquist and Sandra Day O'Connor--appeared to be safe bets to support the "states' rights" arguments against the lenders. But the other six members of the court (Justice Lewis F. Powell Jr. is not participating in the case) were either clearly on the "federal rights" side, or unconvinced that California should be permitted to regulate federal S&Ls. Chief Justice Warren E. Burger, for example, searched for grounds to limit the impact of a pro-S&L decision in this case in other arenas of federal-state conflict.

Burger also brought up the explosive economic issue. S&Ls attribute part of their financial losses during the past two years to their inability to block assumptions of fixed-rate, single-digit loans in their portfolios. Since federally chartered S&Ls carry federal insurance, their substained losses could trigger increasingly large federal outlays in insurance and other bailout assistance.

The linkage, elicited carefully through questioning by Burger, could be a key plank in any "federal rights" decision in this case.

The best hope for the pro-assumption side in the case now appears to be a four-to-four deadlock vote by the justices. That would effectively throw the entire issue back to the states, and put new pressure on Congress to come up with a national legislative solution to the knotty due-on-sale problem.

A clear majority vote in favor of states' rights--which few observers expect--would have a very different impact. It would stimulate an unstoppable wave of consumer-protection legislation in the 30-plus states that haven't sought to restrict lenders' powers on mortgage assumptions. (South Carolina and Georgia already use this approach.)

A majority vote by the Supreme Court in favor of the S&Ls--the most likely outcome in the wake of the oral arguments--would also have massive impact. It would put an immediate damper on home resales involving assumptions of loans made by federally chartered S&Ls in California--a large chunk of the current real estate market there. It would call into question consumer-protection legislation and court decisions in other states that parallel California's, most of which are under legal challenges by S&Ls already.

Equally important, a pro-federal-rights decision would have an immediate, nationwide chilling effect on creative financing in general. Upwards of two-thirds of all home resales today involve some form of takeover of the existing financing, whether by assumption, wrap-around mortgage, or installment contract.

Absent strong federal-judicial backing, lenders in many instances have looked the other way in creative transactions. But they're likely to take a much more militant stand if the high court tells them in effect: Don't worry. Nobody can touch you anymore at the state level. Do what you want about creative-mortgage financing--including stopping it dead in its tracks.