Proposed Legislation Allows Retirement Account Withdrawals for Mortgage Payments

Minnesota Senator Norm Coleman has proposed legislation that would allow individuals who are 60 days late on their mortgage payments to dip into their 401(k) or individual retirement accounts (IRA) without paying a penalty.

According to a press release, the Home Ownership Mortgage Emergency Act (HOME) is meant to help these homeowners avoid foreclosure.

The Republican lawmaker’s proposal would allow these individuals to withdraw up to $100,000 without paying the standard 10% early withdrawal penalty through 2009. There would be no income tax payment required as long as the withdrawals are paid back within three years.

For joint filers, the amount would be limited to borrowers making no more than $114,000 or $166,000.

“I have been troubled by the increase in the number of foreclosures to date, and the projections that the worst is still to come,” said Coleman, in the press release. “While there is no one single solution to the housing crisis, my bill offers a reasonable and measured effort that can help folks stay in their homes in these difficult times. We should not penalize them for trying to keep a roof over their head and I urge my colleagues to support this measure as we seek to help out homeowners in trouble.”

Foreclosures in the U.S. have doubled in the last year, and more than 14.5% of subprime mortgages are past due, according to the press release.