[Congressional Record (Bound Edition), Volume 147 (2001), Part 7]
[Extensions of Remarks]
[Page 9786]
[From the U.S. Government Publishing Office, www.gpo.gov]



                 FIRST-TIME HOMEBUYER AFFORDABILITY ACT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                          Friday, May 25, 2001

  Mr. LaFALCE. Mr. Speaker, I am introducing the ``First-time Homebuyer 
Affordability Act.'' This legislation is identical to H.R. 1333 from 
the 106th Congress.
  This bill is a pro-homeownership initiative, based on the principle 
of empowering families and individuals to use funds in their own 
retirement accounts to buy a home.
  The ``First-time Homebuyer Affordability Act'' unlocks the more than 
$2 trillion currently held nationwide in Individual Retirement Accounts 
(IRA's) for homeownership use. It does so by allowing individuals to 
borrow up to $10,000 from their own IRA (or from their parent's IRA) to 
use as a down payment on a first-time home purchase. Since funds are 
borrowed, rather than withdrawn, the homebuyer does not incur federal 
taxes or a premature withdrawal penalty.
  This bill is a targeted effort to narrow the arbitrary disparity 
between treatment of 401(k) retirement plans and IRA retirement plans. 
Under current law, individuals may borrow from their 401(k) retirement 
account without paying taxes for a broad range of purposes, including 
buying a home. Yet, individuals cannot borrow or otherwise use funds in 
their IRA for personal use, even to buy a home, without incurring 
federal taxes. This is a significant and inequitable impediment to 
homeownership.
  Four years ago, Congress took a modest step towards lowering 
financial barriers to the use of IRA funds for home purchase--through 
enactment of a waiver of the 10% premature withdrawal penalty for 
withdrawal of up to $10,000 from an IRA account for a first-time home 
purchase. However, such a withdrawal still subjects the homebuyer to 
federal taxes on the amount withdrawn. For a $10,000 withdrawal by a 
typical taxpayer in the 28% tax bracket, this creates a federal tax 
liability of $2,800--leaving only $7,200 for a down payment on a home 
purchase.
  Under the ``First-time Homebuyer Affordability Act,'' funds may be 
borrowed tax- and penalty-free from an IRA account for a period of up 
to 15 years. The loan must be repaid if the house is sold or if it 
ceases to be a principal residence. When the loan is repaid, the funds 
are restored in the IRA account, fully available for re-investment on a 
continuing tax-deferred basis.
  Alternatively, the bill permits use of IRA funds for a first-time 
home purchase as a home equity participation investment. Under this 
approach, IRA funds are used for down payment; when the house is sold, 
the investment, plus a share of the profit from home sale (typically 
50%) is repaid to the IRA account.
  The purpose of IRAs is to encourage long-term savings and investment, 
to provide a financial cushion in retirement. Yet, even though buying a 
home is one of the best investments an individual can make, it is not 
an eligible IRA investment. Allowing an individual to borrow from their 
IRA to buy a home effectively makes this an eligible investment.
  Allowing IRA borrowing for home purchase would also eliminate a 
disincentive against IRA contributions. Many young families and 
individuals are hesitant to tie up funds in an IRA account that they 
may need later to buy a home. And, IRA borrowing for home purchase does 
not deplete the IRA account, since the funds are replenished when the 
loan is paid back. Thus, the bill will encourage more long-term savings 
through IRA retirement accounts.
  Finally, this legislation is responsibly drafted, to prevent self-
dealing and generally track provisions of 401(k) loans. Non-payment or 
forgiveness of the loan is treated as a premature withdrawal. In such 
event, the unpaid amount would be subject to federal taxes and a 10% 
premature withdrawal penalty.
  Other protections include a prohibition against taking an interest 
deduction on the borrowed funds, and a limitation that loan rates 
cannot vary by more than two hundred basis points [2%] from comparable 
Treasury maturities.
  I urge Congress to enact this pro-homeownership, pro-savings 
initiative.

                          ____________________