I agree. I think this is the worst thing to happen. In our case we could not, even if we needed/wanted to.
These people must assume responsibily. We cannot and will not continue to bail out those who buy houses they cannot afford.

mariend: "We cannot and will not continue to bail out those who buy houses they cannot afford. "

And just who is this magical "we" of which you speak? How does this affect you in any way whatsoever? And how does allowing people to use their own retirement money to bring their mortgages up to date constitute a bailout? Finally, isn't using their own retirement money to correct their financial mess assuming responsibility?

Now, I'm not weighing in on whether this is a good idea or not, I am merely saying that this action does not constitute a "bailout" in the true sense of that word.

I think it's a bad idea.

I can see somebody reading that and saying to themselves, "Gosh, if I don't make my November & December payments I can use that money & buy a fancy TV for Christmas! I'll get one of these new 401(k) loans & get caught up on the mortgage come January. Then, I'll pay back my 401(k) for the TV over the next three years penalty free."

That's the mindset I've seen with many sub-prime borrowers who make good money; but can't manage it well so I don't know why they wouldn't jump at such legislation as being an 'opportunity' to buy more stuff.

Those sub-prime borrowers who don't have sufficient income to support the house they purchased won't be helped by this legislation either, IMO. It is just delaying the inevitable & costing them more fees.

Somewhere in the middle of these two extremes are a few people who could refinance successfully & avoid foreclosure. I 'think' there are already enough programs available to help these people if they take advantage of them. You can only hold somebody's hand so far/long until they have to stand on their own. This group of people who would really benefit from a refinance need to be proactive in seeking out an appropriate refinance program.

Are Wall Street investors going to purchase these refinanced sub-primes? Just because they are refinanced doesn't suddenly make them prime borrowers...or even alt-As. And, if Wall Street does still have an appetite for these loans...at what interest rates? Surely, they'll want several points over market. It's a merry-go-round, IMO.

I think at this point we, as a country, are just going to have to take the knocks to the economy & hope it doesn't drag already sluggish growth into recession. I do hope those who committed fraud are prosecuted. Even that's probably unlikely although I know some are as I type under indictment. But I think there was a lot of fraud out there that will go without consequence.

Since without the sub-prime borrowers not as many people can qualify for mortgage loans we can expect slower sales for some time into the future, IMO. Slower & fewer sales translates into lower prices. At some point in the future after existing inventory is lessened...some now unknown trigger will start another period of price escalation. Until then, many people will realize that a home is risky as a sole retirement plan &, hopefully, diversify their assets.

/tricia

I am not opposed to this legislation but I think its unrealistic. How many do you think first of all have a retirement account that matters (they probably already tapped it, penalty and all) and then what's going to happen in three years when they don't pay back what they took out and now they have a nice penalty to add to their problems. I really don't see this as fruitful legislation and as basically election year grandstanding to make it look like you are trying to help the common man.

I am for these guys getting the same bailout I got back in 2000 when the market crashed. I fail to see the difference from someone that lost their retirement savings in the market crash or someone that is losing their home because of bad choices. Both relied on flawed and egregious opinions of professionals to make decisions and both paid way too much. Suck it up, and find a place to rent. Good thing is, with so many houses on the market they should easily be capable of finding a place to rent.

IMO, chances are that most people who were able to earn enough money to actually have a decent amount in their retirement account probably do not comprise the majority of people who were scammed into the worst of these loans.

That said, while this proposal may indeed help some, chances are that the numbers are way too small to even make any difference in the grand scheme of things.

Bethesdamadman is indeed correct; if this comes to pass, people will be using their own money to bail themselves out...so, it is not really a bail out at all.....

In addition, there are many people who received equally bad advice from "professionals" on their investments in general..

It seems the lesson to be learned is that if one listens to the advice of any supposed finance "professional" in terms of investing money...be it in RE, stock, funds, etc., the investor is called a fool for following their advice when there is a loss...and the finance "professional" gets all the credit when there is a win...

Am I the only one who sees this as a continuing problem?

Retirement accounts are not the answer to these bailouts.

I blame the mortagae industry for slimy methods & buyers for being not too bright.

BOTH need to work things out by restructuring the loan figures WITHOUT dipping into their RAs.

The banks need to lower or adjust the interest rates so the buyers can afford the payments. It's the BANKS who need to swallow the inrealistic rates that they manipulated the consumers into buying.

Basically, the politicians are protecting the big businesses telling the public to mess with their retirement money. Then when these people retire they will not have any money, hence go on welfare. Now the younger people will pay for the welfare...NOT THE SLIMY BANKS. It's Americans bailing out Americans. There are no free rides.

This is so sick how the politicians disguise who is actually bailing whom out. Urrrgh!

How is this different from a traditional loan against your 401(k)?

"How is this different from a traditional loan against your 401(k)?"

I think it just standardizes the rule for all retirement accounts for this one purpose. Not all 401(k) plans allow loans and those that do may have various loan limits. My 401(k) for example, limits loans to 50% of the employee's contribution (matching contributions do not count) and a maximum of $50,000.

Moreover, I am not sure that the proposed legislation limits loans to just 401(k) accounts. The news article that the OP linked noted that it applied to "retirement accounts." Consequently, this could also mean that individuals could borrow money against their IRA's as well. Unlike with 401(k)'s, there is no current policy that allows loans from IRAs. I haven't researched the proposed legislation outside of reading the linked article, so I don't know for sure whether it would also apply to IRAs, but that is a possibility.

dabunch: "I blame the mortagae industry for slimy methods & buyers for being not too bright"

Well...I think it needs to be said that supposedly 50% of the population hve IQ's between 89 and 111...

It might benefit some to read the below linked article to understand just how absurd it is generalize and blame the borrowers for being stupid, or in the more "PC" sense, not too bright...
...maybe a law should be enacted requiring that only those with an IQ high enough to discern clever scams be allowed to obtain a mortgage to purchase a home....

Is that the answer?

Excerpt:

"The Practical Significance of IQ
The average IQ of the population as a whole is, by definition, 100. IQs range from 0 to above 200, and among children, to above 250. However, about 50% of the population have IQs between 89 and 111, and about 80% of the population have IQs ranging between 80 and 120, with 10% lying below 80, and 10% falling above 120...."

Here is a link that might be useful: The Practical Significance of IQ

Whoa! Logic,
You opened up a whole can of worms with the IQ statistics.

Firstly, my opinion on Standardized Tests is (IQ as one of them) that there should be no such thing. IQ tests need to be abolished. Wait, maybe we should keep them. After all, mine is 140! I know that's all we have, but I am not impressed.
My theory: some IDIOT professed himself to be an expert in the intelligence arena, came up with a test & Viola! Everybody, like Penguins, with no minds of their own, follow his IQ standards.

Again, notice I say NO MINDS OF THIER OWN? Nobody is questioning what makes HIM the expert in the intelligence field...That is the problem with many people: they are blind followers (Sheeple).

People trust that the Government will take care of them (i.e. their Loans). Anyone who has no conscience & is slick (in this case, the banks) can take advantage of the majority of sheeple.

Forget the IQ thing. I would NEVER use that as a true intelligence tool. Trust me, it isn't. I, personally know someone whose IQ is 174, is brilliant in his field, BUT his social life & his finances are worse than that of a 5 year-old. NOBODY is smart in every area.

People have strengths & weaknesses. People have different smarts. IQ tests are not a great tool to test everything...

When I said that people who get themselves into financial trouble are not too bright, I meant that as an adult you need to figure out your bills & your ability to pay, instead of trusting your bank to do the Math for you. It's the peoples' responsibility to live within their means. As a buyer, you need to sift through the Jargon that businesses put in their contracts. You need to know what you're getting yourself into & don't just blame the fast talking businessperson. Your finances, are your responsibility. There are no altruistic do-gooder business entities. Cripe, they wouldn't be in business.

IQ, sheesh, I'll bet that some of the most successful people have "average " IQs. Whereas the most broke individuals have buldging IQs....just like the individual I mentioned above.

I think the plan is an excellent idea. I agree with bethesdamadman's observations. It sounds like a good way to avoid hitting up taxpayers, and providing those in need with an additional tool to relieve their situation. Are those of you against it for a taxpayer bailout? Retirement is also one's own responsibility; when are we going to stop trying to take care of every aspect of people's lives? Maybe by keeping their home, they can ride out the downturn, and cash in before the retire...

As a banker, I know that in the industry there are certain groups of high-earning professionals that have a reputation for being very poor money managers. There are lots of banker insider jokes about this particular pool of professionals. I know they are not unintelligent people. They couldn't be as judged by their education level & career successes. Many, fortunately, turn their money over to a financial manager. Those who do not are a banker's worst nightmare (well, that's not true...but close enough). Honestly, the reputation is so bad that if bankers could reject people without feeling they were discriminating soley on career...they would. So, I know from experience that IQ level does not guarantee understanding of finances. It seems to be rather that these people have been so involved with the education process in their chosen career that other areas of knowledge are short-changed. They 'could' understand but don't bother to learn.

I've found myself in situations that required IQ testing several times. My scores have ranged from 131 to 136 with the higher score coming on a day I was completly stoned on Roxicet (recovering from major surgery & the test day couldn't be changed) & could hardly read the questions. The breakdown of my test scores tell a much different story though than one might assume from just the overall score. I'm just on the positive side of the moron level spatially. Well, not quite but didn't score very well at all. However, my language score was 187. So, when the other test parts like math (I think there was another part also?) were averaged, I came out OK. Since this was a private test situation with no privacy concerns, the administrator of my test said that they rarely saw such a divergence in scores & asked about my background. I was sick as a kid & missed 5th, 6th, 7th, & almost all of 8th grade. During those years, I had a home teacher who came for one hour/day. We mostly focused on maintaining the dexterity in my hands (I play piano) & history. I clearly remember going through my 6th grade history book in two week's time. I did A LOT of reading during those years. But, I was mostly bedridden so had few experiences out in the world. At 14, I was given IQ tests & some type of highschool equivilency exam (this was in CA mid-60s). The school determined I didn't need to attend highschool. What to do with a kid that young who's not in school? In conjunction with my parents, we decided that I would attend school for 3 periods a day in the morning taking classes of my choosing. I took ONLY foreign language & literature plus one lonely history class. I took zero math or science classes. When I was old enough to work, the school got me a job in the Mayor's office & that, in essence, became my 'school'. I held that job for 3 years. The school gave me a diploma when I was seventeen. I went on to art school. I don't think my IQ score has played any significant role in my life other than frustrating me because I was always lost until GPS became available in cars! Did I mention that I love my GPS?!

So, it's no surprise that my language skills developed at a higher level than my spatial abilities. It's not ALL in the DNA. Life experiences do contribute to our IQ scores.

My father only had an 8th grade education & didn't learn English until he was thirteen; yet he became a very successful business owner (Russian immigrant family). He was a math whiz but not exceptional at reading/language. Yet, he was extremely adept at understanding the finances of his business & banking relationships. I believe he was successful because he deemed understanding his finances as critical to the success of his business and, therefore, devoted energy to learning how money works. My father was a musician & that's how he earned his living & supported his family until purchasing his first business at around age forty. Music taught him math skills (as it did me) as well as personal discipline. I believe it was those skills as opposed to his IQ (don't know what it was?) that contributed the most to his success.

So, anyway...I'd be very hesitant to place any responsiblity for the country's mortgage debacle on IQ. I do, however, feel we are seriously lacking in even the most basic financial education in our school systems. My own son is a classic example. He received no financial education in highschool. In college, he was a double science major. In order to get through in four years he didn't have time to take any finance, business, etc. type of classes. So, were it not for DH & I being bankers he wouldn't have nearly the financial understanding he does today.

I've always heard that IQ represents only 20% of a person's potential. The remaining 80% is determination & ingenuity.

/tricia

I can't get too excited about this. The practical effect will be deferring the penalty payment of 10% for 2 years. People who have no cushion for a rate adjustment are unlikely to be able to pay their own 401Ks back in two years. The more practical among them might resolve to unload their house in order to repay the 401K and get out from under. If they are underwater, even that option is, uh, foreclosed. I'd be a little happier if the loan out was limited to 50% of mortgage payment per year, as it is a concern that these folks will need a real bailout from the rest of us if they try and retire earlier than they can afford. Given their track record on mortgage payments......

The article is vague on the details but I think the plan would work more like a hardship distribution than a loan. The idea is to make it easier to qualify for a hardship distribution than those who are not facing house trouble would enjoy. A similar program was passed in 2005 to help hurricaine victims (Katrina, Rita, Wilma). I really have no issue with those who need a one-time helping hand availing themselves of looser rules. I just don't know how many failing homeowners are in that situation.

If a homeowner is in trouble because they're carrying more mortgage than they can afford, I don't see how using a retirement fund distribution will right the ship. It seems to me that in a couple of years, they'll be back on the brink of losing their home but with less money available for their retirements. Poor financial judgement seems to be a root cause of this crisis. I hate to see our government encouraging financially undereducated people to dig the hole deeper.

My tax dollars may not be bailing homeowners out now but when we're facing a retirement crisis...all bets are off.

Isn't freezing interest rate resets the simplest solution? Sure, the banks lose out on those teaser mortgage rates going up to 10%, but tough titty. If the people could pay when the rate is lower, and get into trouble when the rate goes up, why not just keep the rate from going up??

Of course, I also never understand why brand-name drug makers don't just lower their price when their drugs go off-patent, instead of throwing millions of dollars into advertising or suing to keep generic manufacturers from making cheaper versions. They wouldn't lose nearly so much market share, and that would have to help the bottom line.

With two modifications I could support this legislation. There should be some minimum balance in the retirement account to qualify for the program, say, $500,000. If you have more than that, ok, withdraw $100,000 without penalty, if you have less, then no, you need that $100K to compound so you have a decent retirement. Maybe even make it a cool $1 million. Now of course, realisticly, this will shut out the great majority of people from the program, but at some point there has to be "more than enough" in the retirement account that perhaps people should be allowed to tap.

Also, I would exclude Roth IRA and Roth 401k's from this program, since it truly would constitutute a taxpayper bailout if those funds were used.

With less money saved by retirees, will the burdens on social security and medicare/medicaid be ever greater? Probably yes, but will those burdens be even greater yet if we foreclose on people and put them out in the street?

Sometimes you have to choose the path of least harm, not "no harm".

mfbenson: "Also, I would exclude Roth IRA and Roth 401k's from this program, since it truly would constitutute a taxpayper bailout if those funds were used."

Actually, that makes no sense whatsoever. People have already paid taxes on their Roth contributions. Moreover, when you take distributions from a Roth, you don't pay any taxes whatsoever, so there is no way that utilizing Roth's for this program would constitute a "taxpayer bailout."

And finally, with respect to Roth IRA's, people can already withdraw their contributions now without any penalty whatsoever. Only the earnings on those contributions must stay in the account or otherwise be subject to the 10% penalty.

This proposal is nothing more than political grandstanding.

I would venture that the percentage of those who would make use of such a program to "save" their home is diminishingly small.

IMO, the market should be left to correct itself. Lenders who pushed these product should suffer the financial consequence, and homeowners who bought that which was too good to be true should also feel the pinch. Housing prices should be allowed to fall without a bail out until the market stabilizes. Lower home prices will help all new and potential homeowners.

Borrows who were deceived by lenders should be helped, and deceptive lenders should be punished.