jgillooly@mdjonline.com
MARIETTA — U.S. Sen. Johnny Isakson (R-east Cobb) said he is pleased that President Barack Obama is expanding refinancing opportunities for American homeowners using steps Isakson proposed.
Obama has announced reforms aimed at helping the millions of borrowers who are not behind on Fannie Mae or Freddie Mac-backed mortgages, including eliminating risk-based fees on loans for which Fannie and Freddie already bear the risk and removing refinancing limits for properties on which borrowers are “underwater” or owe more than the home is worth.
Isakson quoted the Wall Street Journal’s recent estimate that there could be between one million and two million homes in Georgia that are eligible for such refinancing, with a large percentage of those in Cobb County, the state’s third largest county.
“We got an obvious housing problem, but we also have an awful lot of Georgians who are playing by the rules,” Isakson said. “They’re making their payments. They’re not getting behind even though their houses are underwater. Everybody has been trying to throw money at people who were behind and weren’t making their payments, and the people that were making their payments to stay in their homes are the real heroes through this recession, trying to at least contribute to stabilizing the housing market.”
The administration’s plan comes from Isakson and U.S. Sen. Barbara Boxer’s (D-CA) bipartisan Helping Responsible Homeowners Act.
“We’ve been working on him to adopt it because it is adoptable by the agency (the Federal Housing Finance Agency) without having to have a statute,” Isakson said.
The reforms allow those who are current and yet underwater on their Freddie Mac or Fannie May mortgage to refinance without cost at the lower interest rates that currently prevail. For example, take a homeowner who bought a $200,000 home in 2006 with a $160,000 loan. But now that home has dropped in value to $140,000 with the loan balance paid down to $150,000. The measure allows the refinancing of that $150,000 mortgage to current rates, which are 3.75 to 4 percent, compared to in 2006, when they were 6 to 7 percent, Isakson said.
“That’s less money out-of-pocket for your payment every month, which is more money in your pocket, which helps the economy,” he said.
And with Freddie Mac and Fannie May already holding the note, their liability isn’t increased, he said.
“It just pays attention to those people in America who are making their payments, playing by the rules, trying to ride out this recession and protect their largest investment, which is their house.”
In related news, Isakson and U.S. Rep. Tom Graves (R-Ranger) have introduced the HOME Act, a bill to allow Americans to make withdrawals from their retirement accounts to pay their mortgage.
The HOME Act allows a taxpayer to withdraw money from a qualified retirement plan penalty-free to make mortgage payments toward his primary residence with a lifetime cap of $50,000 or one-half of the present value of one’s 401(k) account, whichever is smaller, so long as those funds are used for that purpose within 120 days of withdrawal. Deferred income tax otherwise due on those withdrawals would still be due to the Internal Revenue Service.
There are presently only two legal reasons to withdrawal from a 401(k) without incurring a 10 percent penalty: for medical emergency or a college education, Isakson said.
The Isakson/Graves proposal would allow for a third penalty-free option for withdrawing. The bill is currently in the Senate Finance Committee.
“It’s going to be a little tougher because there are a lot of people that don’t want to broaden the use, but it sure makes a lot of sense to me to allow somebody to use their own money to reduce the debt on their biggest investment, which is their house, and when the house comes back in value they protected an equity that they temporarily lost because of the economy,” he said.
Isakson said he understands the objection from critics concerned with lifting restrictions on the use of such accounts.
“But think about this,” he said. “You get foreclosed on your principal residence, you have destroyed your credit for seven years, greatly diminished it for a lifetime. You’re going to pay much higher interest rates because you had a foreclosure. To the contrary, if you’re able to stabilize your loan, reduce your principal, stay in your house, your credit rating remains high, your interest cost remains low, and when the markets come back you recover your equity.”
Both proposals are designed to help citizens get through the recession.
“A lot of people are losing their homes, and there are going to be a lot of people who will lose their homes because of foreclosure, but there also are ways that you can help these people without using taxpayer money and allowing them the flexibility to use their own or giving them a break like the refinance rates, so I’m trying to help the voters,” he said.
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