Five associations - calling themselves "The Group" - were represented: the bankers, realtors, mortgage bankers, the National Association of Home Builders and America's Community Bankers, which lobbies for savings and loans.

"There was an immediate fear and shaking, quaking in the boots, and then springing into action," recalled Mike Ferrell of the Mortgage Bankers Association. "It caught us by surprise. You just don't think of the Republicans as taking on home ownership."

By the next week, "The Group" sent a letter to Packwood, warning that his idea would lead to "radical dislocation in property values, ownership and in the financial industry."

Three days later, the realtors' newsletter alerted the association's 750,000 members to the threat with a banner headline, "It's War!"

CONSUMER GROUP JOINS LOBBY

The groups then expanded their coalition, enlisting a consumer group, the 64,000-member United Homeowners Association; lumber dealers; resort developers; and the secondary mortgage market companies, Fannie Mae and Freddie Mac.

They notified municipal and county officials, warning that decreasing the deduction would lower property values and, thus, local tax revenue.

The realtors established a toll-free telephone number, which so far has routed more than 13,000 calls to lawmakers' offices. In mid-May, it rallied 8,000 brokers at a Washington convention around the theme, "Save the American Dream."

The push paid off earlier this month when three members of Packwood's committee - Sens. William Roth, R-Del., Alfonse D'Amato, R-N.Y., and Max Baucus, D-Mont. - introduced a resolution to preserve of the current mortgage deduction. Meanwhile, Rep. Marge Roukema, R-N.J., heads a similar effort in the House.

Of Washington state's congressional delegation, Reps. Norm Dicks, D-Bremerton, and George Nethercutt, R-Spokane, have signed on as cosponsors of the resolution.

PACKWOOD PUSHES FOR MACHINES

For Packwood, the phrase "mansions vs. machines" sums up his argument. He asks: Should the government forgo tax revenue to encourage the ownership of mansions, his term for homes worth more than $250,000, or should it promote the purchase of productivity-improving, job-creating capital equipment?

The deduction's supporters counter that any narrowing would be a first step on the slippery slope toward its elimination. "It could have ripple effects on homeowners not affected," said Ed Yingling of the American Bankers Association. "They couldn't be sure their deduction was safe. It could have a real chilling effect on the entire market."

---------------------------------------------- DEDUCTION STILL THREATENED BY INCOME-TAX PLANS ---------------------------------------------- Although supporters of the mortgage-interest deduction believe they've probably won the battle against Sen. Bob Packwood, they are prepared to renew efforts next year. Many legislators who say the deduction is safe this year advocate comprehensive overhauls of the income-tax code in 1996 or 1997 - overhauls that would eliminate or cap mortgage-interest deductions.

-- Rep. Richard Armey, R-Texas, House Majority leader, would scrap all deductions and credits, including the mortgage-interest deduction and earned-income-tax credit, under his flat-tax plan.

-- Sen. Arlen Specter, R-Pa., a contender for the GOP presidential nomination, would cap mortgage-interest deductions at loan amounts up to $100,000 as part of his flat-tax plan.

-- Sen. Richard Lugar, R-Ind., another presidential contender, would scrap the income tax, and thus mortgage-interest deductions, altogether and abolish the Internal Revenue Service.