Proposed HOME Act Could Save Distressed Borrowers
October 13, 2011 by Isabelle Bolliger · Leave a Comment
With hundreds of thousands of homeowners facing imminent foreclosure and estimates of 2 million or more in the wings, are there any financial tools available to distressed borrowers that haven’t been tried yet? Equally important politically: Is there a way to help owners that won’t rack up huge federal expenditures and add to the deficit?
The Obama administration has been exploring options including a new refinancing program expected later this month but a concept has surfaced on Capitol Hill that might offer modest help with no revenue cost to the government: Amend the tax code to allow homeowners who have 401(k) retirement plans to pull out money to save their houses from foreclosure without the usual tax penalties.
The change would work like this: Under current rules, anyone making what’s known as a “hardship” early withdrawal of funds from their 401(k) must pay the IRS a 10 percent penalty on top of ordinary income taxes.