More than 38,000 military personnel serving in the Persian Gulf War have filed claims with lenders to have the interest rates on their mortgages temporarily discounted and could save an average of $1,968 if their tour of duty lasts a year, a new survey showed.

Under the Soldiers and Sailors Civil Relief Act of 1940, military reservists called to active duty from civilian life are eligible for various forms of financial relief, including a 6 percent interest rate cap on home loans in existence before the borrower was mobilized.

Lenders must forgive any interest due on a first mortgage, second mortgage or home equity credit line for as long as members of the reserves or the National Guard remain on active duty. The home loan borrowers are not required to pay back the interest savings.

Those in regular, full-time military service are not eligible for the rate break under provisions of the World War II-era law.

Another 21,000 reservists have also inquired about taking advantage of the reduced interest rate, according to a lender survey conducted by the Mortgage Bankers Association of America.

The association polled 100 of its members and extrapolated those results to lenders across the United States.

So far, President Bush has called up 220,000 of the nation's 1.17 million civilian soldiers to serve in the Persian Gulf War.

"We do not know what the universe of eligible reservists is out there {for the interest rate discount}," said Michael Ferrell, the association's chief legislative counsel. "We may have hit 20 percent or 90 percent, but we will not know except in hindsight. What we do know is that in four short months the claims have gone from zero to a significant number in dollar amount as well as volume."

Since Feb. 1, lenders have reduced interest rates for the reservists from about 9.9 percent to the 6 percent cap rate, according to William Brewster, who conducted the survey for the association.

On a $70,000 loan, a rate reduction to 6 percent from 10 percent would save a borrower $144 a month.

A reservist can claim the savings only for the time period corresponding to the borrower's tour of duty. Although reservists were initially called up for 90 days, in many cases those tours have been extended to 180 days and then to a year, said Keith Pedigo, director of loan guaranty service for the Department of Veterans Affairs.

Many of the most recently activated reservists, he added, are likely to serve one-year tours.

The survey did not count the number of denials of discount claims, but the most common reason mentioned by lenders centered on the ineligibility of borrowers employed by the military rather than called up from the civilian standby forces.

Other reasons given for rejections include cases where the reservist is not listed on the mortgage or the property deed and where the mortgage rate is already at or below 6 percent.

Some lenders also indicated they have exercised their option to challenge the borrower's financial need for the rate break when the reservist's military pay exceeds the borrower's civilian pay, Brewster said.

Mounting lender losses as a result of the credit relief law have prompted the mortgage banking industry to call for some relief of its own.

When a rate reduction is made on mortgages backed by the Federal Housing Administration or Department of Veterans Affairs, then the lender administering the loan must absorb the losses.

The association said it would prefer to see the Government National Mortgage Association (Ginnie Mae), which buys these loans from lenders and pools them into securities for sale to investors on the secondary market, take the loss.

Based on actual and pending discount claims, the association predicted lenders will incur $48 million of losses in a year, an amount it claims Ginnie Mae should pay out of its $2 billion reserve fund.

Such a move would bring Ginnie Mae in line with the policies adopted by the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), which provide the secondary market for conventional mortgages.

Freddie Mac and Fannie Mae announced in August that they would make up the difference between the contract interest rate and the 6 percent cap.

"This is a cost of the war that ought to be spread across society and not put on any particular lenders or group of lenders," said MBA executive vice president Warren Lasko. Some small lenders located near military bases or in areas where there have been heavy reservist call-ups have been particularly hard hit by the interest rate relief provision, Lasko said.

To date, Freddie Mac has reduced the interest rate on 1,800 mortgages and received another 450 applications, according to a company spokesman.

Reservists who rent homes may find some additional relief in pending amendments to the 51-year-old law, which are now working their way through Congress. The House recently voted unanimously to raise the maximum rental amount from $150 to $1,200 for purposes of forestalling eviction proceedings.

Under the proposed amendment, landlords must obtain a court's permission to evict a tenant and, even then, the court can postpone the eviction for up to three months, said Jim Holley, a spokesman for the House Veterans Affairs Committee.

"That provides a little bit of solid ground while reorganizing to try to figure out what you are going to do" when faced with an eviction, Holley said.

The Senate is expected to vote on the amendments next week.

Rep. G.V. "Sonny" Montgomery (D-Miss.) has also introduced a bill, the Persian Gulf War Veterans Benefit Act, that would create some additional housing-related benefits.

Under Montgomery's proposal, military personnel who have had a mortgage application rejected or other credit denied because they might face a drop in income should they be called to active duty could then turn to the Veterans Affairs department as a lender of last resort. The committee has received various reports of mortgage denials under such circumstances, Holley said.

The Montgomery bill would also give reservists an additional year to reinvest the proceeds from the sale of a personal residence into another home without incurring any capital gains taxation. Home sellers now have two years to act to avoid the tax.