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Morgan Larson's Blog

By Morgan Larson | Agent in Folsom, CA

New Bill Might Help Home Owners Stay Away From Foreclosure

Foreclosure is scary, confusing, stressful, and embarrassing, to say the least. Our Federal Government has been trying for years to come up with new ways for home owners to win the battle against foreclosure and be able to keep their homes, despite the economy. Unfortunately, without increasing government spending, no good way has been created or proposed that might help end the foreclosure epidemic. Until now.

Honestly, I don't think that the new bill proposal will be able to stop all, or even half, of the oncoming foreclosures. But, it might help several families that had good jobs and were working hard toward a comfortable retirement when their position was terminated. The new bill proposes changing the tax laws regarding 401k retirement plans. Rather than being penalized for early withdrawals, if a person could prove they were using the money to stop foreclosure there would be no 10% penalty owed to the IRS. This of course, makes it a much more tempting method to stop foreclosure.

What makes me nervous, is if a person is trying for a loan modification. Many of these loan modifications ask for the home owners to pay their default amount, and then the bank gives the home owner a trial period of a lower payment. The home owner is usually able to pay this payment for the necessary time, and is under the belief that they will get to keep their home at this new payment. Well, I haven't met anybody that didn't finish the story by telling me that the bank raised their payment immediately. How does this play into the new bill?

Well, suppose you wipe out your 401k in order to pay the default amount. And you believe you are fine because your lender has offered you a new lower monthly payment. But then it's upped again, and quickly you are back in default. Now, you have no retirement and are still going to lose your home.

If you aren't in default but are having a hard time making payments, or, if you are in default but now a have a job where you can make the payments again, then the 401k option might be a good one for you. But, if you aren't making the same amount of income as you were previously, it might not be a good option to wipe out your 401k when you might still lose your home.

Of course, this is all hypothetical, because no bill has been passed yet, just considered.

Here's the original article from L.A. Times: Click Here

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