Retirement savings might help mortgages

WASHINGTON — A pair of Georgia members of Congress plans to introduce legislation this week that would allow homeowners to use their retirement savings to pay down a mortgage without penalty.

The bill, to be introduced by Republicans Rep. Tom Graves and Sen. Johnny Isakson, is designed to help homeowners struggling to make payments. An outline was provided exclusively to The Atlanta Journal-Constitution.

People with retirement accounts such as a 401(k) typically face a 10 percent penalty for withdrawals before they turn 59 1/2 years old, though there are several hardship provisions that allow some people to avoid the penalty, including medical expenses and college tuition. The bill adds a mortgage payment to the list of hardships, allowing a withdrawal of up to $50,000 or half of the value of the account — whichever is smaller — to pay down a mortgage on a primary residence.

Graves, of Ranger, said he got the idea from a constituent in the mortgage industry.

“Individuals might have been saving up for years doing the prudent thing, then they lose their job and the only way they access this money is if they’re penalized by the federal government,” he said. “... So this removed the penalties.”

Through a spokeswoman, Isakson, who ran a residential real estate brokerage company before getting into politics, added: “This legislation would give folks another opportunity to stay in their home using their own resources.”

Similar proposals have been discussed since the start of the mortgage crisis, and one was introduced by then-Sen. Norm Coleman, R-Minn., in 2007. But the bill stalled as some Democrats criticized it as a Band-Aid far too small to fit the crisis and expressed concern that it could put savers’ nest eggs at risk.

Now the housing market remains weak, particularly in Georgia, where even small-scale help such as this bill likely would be welcomed by the mortgage industry.

Bill Adams, president of Adams Realtors in Atlanta, said about one-third of potential home listings his firm deals with are “upside down,” meaning they owe more than the house is worth.

“This gives us another little tool,” Adams said of the bill. “If this came to pass, we can say, ‘Hey, have you considered this alternative?’ And let the seller get with their financial adviser to say, ‘Hey, this makes a lot of sense.’

“It could free up a part of the market. And, gosh, a lot of it is gridlocked because of people being upside down and people being concerned about the markets.”

President Barack Obama has proposed several larger efforts to help homeowners avoid foreclosure, and in a speech last month said he will roll out a program to allow struggling homeowners to refinance their mortgages under today’s low interest rates. The proposal mirrors a bill Isakson has sponsored in the Senate.