Dukakis Urges IRA Plan to Aid Home Buyers

In the midst of a suburb that has become synonymous with mass-produced affordable housing, but where houses are now fetching as much as $200,000, Michael S. Dukakis on Monday proposed changing federal regulations in order to open up home ownership to greater numbers of middle-income Americans.

Under Dukakis’ plan, the government would permit money to be withdrawn from IRA and 401(k) retirement funds without penalty if used for first home purchases, and down-payment requirements for federally insured mortgages would be lowered.

In addressing a concern of young voters unable to purchase first homes, and then marching more than a mile up 5th Avenue in New York City’s Columbus Day Parade, the Democratic presidential nominee focused his attention on two key groups of voters up for grabs on Election Day, four weeks from today: young voters, who supported Ronald Reagan overwhelmingly in 1984, and members of ethnic groups who helped make up the bloc known as Reagan Democrats.

During the parade, Dukakis--accompanied by such key New York Democrats as Gov. Mario M. Cuomo and Mayor Edward I. Koch, and even Republican-appointed U.S. Atty. Rudolph W. Giuliani--was greeted by well-organized crowds five and six deep waving Dukakis-Bentsen signs, an indication that the Dukakis organization was applying the crucial, careful advance work that was sometimes absent earlier in the campaign.

The candidate responded by straying from curb to curb, shaking hands with the lunchtime crowds that turned out on a crisp autumn day.

Bush ‘Has No New Ideas’

Earlier, in a speech that presented the outline of his housing plan while sharpening his attack on Republican presidential nominee George Bush, Dukakis declared: “Mr. Bush has no housing program. He has no solutions. He has no new ideas.”

Dukakis’ proposal would relax the limits on uses of funds placed in tax-deferred individual retirement accounts, permitting people to withdraw up to an estimated $10,000 in these accounts without penalty. This money, along with funds in the private pension program known as 401(k), would then be applied to down payments on the purchase of a first home.

Under current law, money in these accounts cannot be withdrawn before the saver reaches the age of 59 1/2 except in cases of specific hardships or by paying a sharp penalty. Taxes on the earnings are deferred until the principal and interest are withdrawn.

“This is a natural extension of what IRAs are all about--encouraging saving and providing more security in old age,” Dukakis said in a speech to supporters at the Gen. Douglas MacArthur High School in Levittown.

Cost of Program Estimated

By increasing participation in the individual requirement account program, the proposal would cost the U.S. Treasury about $400 million annually in deferred tax revenues, said Myles V. Lynk, a deputy issues adviser to Dukakis.

In addition, he said, the program would cost $102 million to extend federal tax exemptions on state and local mortgage revenue bond programs that provide funds at reduced rates for first-time middle-income home buyers.

The Dukakis program, which would be available to people with incomes up to about $40,000, would also relax the requirements for mortgages insured by the Federal Housing Administration. Under current rules, home purchasers whose mortgages are insured by the FHA must place down payments of at least 3% on the first $25,000 of a purchase price and 5% on the remainder. Under the Dukakis plan, the $25,000 ceiling would be eliminated, reducing the down payment to 3% of the purchase price.

Ceiling on Loans Would Go

In addition, the proposal would remove the ceiling of $67,000, or up to $101,250 in certain designated high-cost areas, on loans the federal agency will insure. And it would broaden FHA authority to insure most forms of adjustable rate mortgages.

Lynk estimated that 5 million people would meet the criteria for the housing program.

Dukakis said the program, which he called “Home START,” would help make available “affordable housing for all Americans” by “lowering down payments and by raising the borrowing limits on federally guaranteed mortgages and by cutting closing costs--essentially what we did after World War II.”

By unveiling the program in Levittown, Dukakis made an entire community a campaign symbol.

Levittown, in the heart of Nassau County just east of the New York City borough of Queens, was designed in the late 1940s to provide low-cost housing primarily for veterans returning from World War II and starting to raise families.

Rise in Cost Cited

According to the Dukakis campaign, a typical two-bedroom home in Levittown sold for $6,990 in 1947, and no down payment was required. Such a house would sell for at least $125,000 now, the campaign said.

Illustrating the middle-class housing crunch, Dukakis visited a home owned by Lou Telano, a retired New York City housing patrolman, that is now home to his extended family because Telano’s working children cannot all afford their own homes. The Telano house was said by Dukakis to be worth $200,000--out of range for many middle-income people.

Gov. Deukmejian seeks Democratic votes for Vice President Bush in Northern California campaign swing. Page 23.