DALTON, Ga. - U.S. Rep. Tom Graves says his legislation allowing homeowners to dip into their retirement accounts to avoid foreclosure will help stabilize the housing market.
Speaking Wednesday in Dalton, Graves, R-Ga., said the HOME Act, sponsored by Sen. Johnny Isakson, R-Ga., in the Senate, would eliminate the federal penalty on early withdrawals from 401(k) accounts if the money was used to make timely mortgage payments.
HOME stands for the Hardship Outlays to protect Mortgagee Equity Act.
Under the current setup, homeowners can use money in their 401(k) to pay their mortgages or anything else, but they face a 10 percent penalty for early withdrawal.
"Why should the federal government benefit from the hardships of Americans?" Graves asked.
In 2009, 49 million American workers had active 401(k) plans, which at the end of that year represented $2.8 trillion, according to the Employee Benefit Research Institute.
Addressing industry leaders at the Carpet and Rug Institute, Graves said the bill would help stop the dangerous "spiral" of foreclosures. Slowing foreclosures would help home prices level out, which should benefit industries such as carpet, he said.
Graves said the idea came from a meeting with his Economic Advisory Council, which consists of business owners from Northwest Georgia.
State Sen. Charlie Bethel, R-Dalton, attended the meeting and said he liked the bill because an investment in home ownership is "functionally" an investment in retirement.
"If we can stabilize people in their homes, that's good for everybody," Bethel said.
Jim Sprague of Jatec Industries, a manufacturing company in Dalton, said he likes the idea, but hoped it would go further to eliminate other tax issues that could be involved in withdrawing early from a 401(k). If that happened, "I would pay my mortgage off tomorrow," he told the group.
When the legislation was introduced in October, Isakson released a statement saying it could be a key part of stabilizing the housing market, a big piece of recovery efforts.
"I firmly believe that economic recovery in this country will not occur until the housing market bounces back," Isakson said in the statement.
Opponents have argued that eliminating the penalty would also eliminate a source of tax revenues, but Graves said overall it has been well received.
After the meeting, he said the bill was likely stalled until the so-called "supercommittee" of 12 bipartisan congressmen releases its recommendations on how to trim $1.2 trillion out of the federal budget. He said it's possible the committee could include the bill in their plans, but he did not know how likely that was.