YOUR MORTGAGE : IRA Changes to Aid Buyers Gain Support : Retirement accounts: President Bush and Sen. Bentsen both back legislation for penalty-free withdrawals for first-time home buyers.
Some real estate experts expect Congress and the Bush Administration to reach an accord this year that will finally allow first-time buyers to make penalty-free withdrawals from their retirement accounts to buy a house.
Proposals aimed at letting cash-strapped buyers tap their Individual Retirement Accounts or other retirement plans have been introduced every year since the mid-1980s. Each proposal has fallen victim to partisan bickering or concerns about their impact on the federal budget deficit.
But now, a renewed sense of partnership on Capitol Hill--coupled with dropping homeownership rates--has Democrats and Republicans alike lining up behind various IRA proposals that could give the nation’s ailing housing market a huge shot in the arm.
U.S Sen. Lloyd Bentsen (D-Tex.) will soon introduce a measure that would allow first-time buyers to tap their accounts without paying the 10% penalty that the Internal Revenue Service currently levies on early withdrawals.
The bill, which Bentsen outlined in a recent letter to his colleagues, would also allow parents and even grandparents to make penalty-free withdrawals from their own accounts if the money would be used to help their offspring buy a house.
Bentsen is generally well-liked by both Democrats and Republicans, and his chairmanship of the influential Senate Finance Committee bolsters his proposal’s chance of passage.
The former vice presidential candidate is expected to introduce the legislation as early as this week, just days after President Bush announced his support of penalty-free withdrawals for first-time buyers in his Jan. 25 State of the Union address.
“I’m not going to say that it’s a done deal, because similar proposals have been made before, and they all wound up going nowhere,” said Steven Dreisler of the National Assn. of Realtors, a trade group that has lobbied for such legislation in the past.
“But the fact that we have both the Democratic chairman of the Senate Finance Committee and the Republican President in sync on this issue makes me feel pretty confident that we’ll finally see an IRA bill passed.”
Added Jerry Howard, a lobbyist for the National Assn. of Home Builders: “Prospects for passing some type of IRA bill have never been better. We’ve got the nation’s top Republican and one of the nation’s top Democrats moving in the same direction on this issue, and they’re picking up supporters fast.”
The President outlined his IRA plan last week, when he released his proposed budget for fiscal 1992. It’s nearly identical to the proposal he made last year--and much less generous than the one offered by Bentsen.
The Bush program would limit penalty-free withdrawals to $10,000. Although that’s a fair-sized down payment in some parts of the country, it isn’t much in areas of high-cost housing such as California and the Northeast.
Resolving differences between the President’s proposal and the Bentsen plan won’t be easy, in part because Bentsen’s program could cost the Treasury several billion dollars in tax revenue.
For example, while the Bush plan would limit penalty-free withdrawals to $10,000, the Bentsen bill would have no limits on how much could be taken out.
In addition, Bentsen would permit people trying to pay for a child’s college tuition or meet “devastating” medical expenses to make penalty-free withdrawals.
Other parts of the Bentsen plan that could prove controversial:
* Full deductibility for up to $2,000 in IRA contributions, regardless of a taxpayer’s income. Under current law, only single people who make less than $25,000 or married couples who make less than $40,000--along with people who aren’t covered by another pension plan--can take full deductions for their IRA investments.
* Creation of a new type of IRA, the “Super IRA.” Taxpayers couldn’t deduct their annual contributions to the plan, but any earnings would be tax-free and no penalties would be levied as long as the funds were left untouched for at least five years.
* Workers who have 401 (k) or 403 (b) plans could also withdraw their contributions without penalty to buy their first house, pay educational expenses or--as current law permits--pay medical bills.
“I think that figuring out how to pay for this legislation could be tougher than actually getting it passed,” said Howard, the builders’ lobbyist.
“The purposes of either plan should appeal to just about everyone in Congress, but they’ve got to figure out where the money is going to come from.”
Under a measure signed into law last year, any bill that might result in a loss of tax revenues must be paid for out of other sources.
“There really isn’t any firm way to say how much this bill would cost the Treasury or save it,” said Jack DeVore, an aide to Bentsen.
“But if we can get people to start saving again, interest rates will head down, the government won’t have to be so reliant on foreign capital and we can reduce our trade deficit even further. So, you could argue that long-term, Sen. Bentsen’s plan might actually save the Treasury money.”
If the bill runs into trouble because of its potential cost, some experts say that Congress could shift its support to a less expensive but less generous proposal expected to be introduced soon by Sen. Alfonse D’Amato (R-N.Y.).
The complex plan would allow IRA holders to use their savings to either buy a house or finance it. Parents and grandparents could also withdraw money to help their offspring purchase a house.
However, the money would essentially be considered a loan that would eventually have to be paid back to the accouint. As a result, the Treasury wouldn’t lose any money--it would just have to wait longer to collect it.
TOP U.S. MORTGAGE ORIGINATORS IN 1990 Twelve of the nation’s 25 biggest lenders in 1990 were based in California.
Billions of Dollars Percent Lender State 1990 1989 change Citicorp Mortgage and affiliates MO $12.96 est $12.3 5.4% Home Savings of America CA 12.94 11.0 17.6 Fleet/Norstar Financial Group RI 11.70 8.7 34.5 Great Western Financial CA 10.60 11.1 -4.5 Norwest Corp. MN 8.80 4.4 100.0 Bank Of America CA 7.20 4.4 63.6 Prudential Home Mortgage MO 5.80 3.7 56.8 Marine Midland NY 4.80 6.0 -20.0 BancBoston Mortgage FL 4.62 3.6 28.3 Travelers Mortgage Services (GE) NJ* 4.57 4.4 3.9 Sears Mortgage and affiliates IL 4.57 3.8 20.2 Golden West Financial CA 4.31 4.7 -8.3 Countrywide Funding CA 4.30 3.5 22.9 Security Pacific National Bank CA 3.80 4.1 -7.3 CalFed CA 3.70 2.7 37.0 IMCO Realty Services CA 3.61 2.2 64.1 American Savings Bank, S.A. CA 3.60 est 2.6 41.2 First Union Mortgage NC 3.20 3.0 6.7 Margaretten & Co. NJ 3.05 3.1 -1.6 Citizens & Southern/Sovran VA 2.93 2.3 27.2 GlenFed CA 2.92 4.6 -36.4 NCNB Mortgage Corp. TX 2.60 1.7 52.9 First Nationwide Bank CA 2.36 2.4 -1.7 PHH/US Mortgage Corp. NJ 2.36 1.7 38.8 American Residential Mortgage CA 2.34 3.2 -26.9 Totals For Top 25 Lenders: $133.63 $115.2 16.1% Estimated Market Share: 33% 30%
Notes: Market share based on estimated residential mortgage originations of $410 billion for 1990 and $390 billion for 1989. Mortgage volume includes 1-4 family residential loans closed in lenders’ name. Wholesale purchases are counted. Survey information generally was provided by lenders themselves, and, when possible, confirmed with another source.
*Travelers Mortgage volume includes $700 million originated by GE Mortgage in 4th quarter.)
Source: “Inside Mortgage Finance,” Washington, D.C. (301) 951-1240
