Yesterday I tweeted about Barney Frank’s idea of giving unemployed homeowners access to low interest loans. The theory is that it help fills a gap in the Obama Administration’s plan to address foreclosures caused by unemployment. I think this is a bad idea (and a bit of mid-term election posturing). And I think there’s a sounder way to help unemployed homeowners.In an AP report found at NPR, Frank is quoted as saying:
These are people who are very responsible, very thoughtful. They got a home, it’s above water, they’ve got equity, but they’re unemployed, and you can’t afford mortgage payments on unemployment.
The AP report also states that “The emergency loans would be provided for up to 12 months with the possibility of extending them for another year.” This assumes that he unemployed homeowner will be able to secure another job – presumably at the same pay (and undoubtedly at or near the same locale that the homeowner can commute to).
As Congress still seeks more debt for funding, and as calls for spending cuts continue to grow, why not create a way to give responsible homeowners access to their own money?
Why not float an idea of giving tax breaks to unemployed homeowners who need to use their 401ks or IRAs for mortgage payments? Instead of borrowing money from the government, responsible homeowners would be essentially borrowing money from themselves. If at the conclusion of a 12 or 24 month period, the homeowners has comparable employment (in terms of compensation) and perhaps even a mortgage modification, the disbursement from the 401k/IRA can be taxed (or not taxed if certain circumstances) – or perhaps Washington can come up with some scheme by which to have the tax reduced if the homeowner is still encountering financial difficulty.
If the homeowner ends up being underemployed – or remains unemployed after 12 months, the homeowner will have the option of selling the home within the next 12 months, again, create tax incentives that allow the homeowner to downsize and/or adjust their living circumstances without suffering through a foreclosure.
Giving homeowners access to their own money (via their own retirement savings) is a sounder way of preserving homeownership for responsible homeowners, and it provides an added incentive to be proactive… which can be difficult to do when you lose your job. Even under the best of circumstances.
Related posts:
