Lawmaker offers bill allowing IRA funds for homes

WASHINGTON (Reuters) - Some U.S. homeowners struggling with higher mortgage payments would be allowed to withdraw up to $25,000 from their retirement accounts without penalty, under legislation proposed on Monday by a New York congressman.

Called the Homeowners Assistance Act, the bill would apply to adjustable rate mortgages (ARMs) that were taken out from 2000 through 2004 and with interest rates that reset between 2005 and 2009, said U.S. Rep. Vito Fossella, a Republican.

The legislation, which is not focused solely on borrowers with poor credit histories, is aimed at helping qualifying homeowners refinance and avoid foreclosure.

"This bill would give homeowners access to much-needed capital before they fall behind in their mortgage payments," Fossella said in a statement.

Fossella's bill, which will formally be introduced this week, is similar to legislation introduced in October by U.S. Sen. Norm Coleman, a Minnesota Republican. Coleman's bill would allow for withdrawing up to $100,000.

Under Fossella's bill, an individual homeowner who makes no more than $114,000 a year would qualify. For a couple, the combined salary cap is $166,000.

Fossella said his measure could help homeowners avoid a 10 percent penalty and the taxes that now result from withdrawing money from an individual retirement account before turning 59-1/2 years of age.

To encourage reinvesting the funds into retirement accounts, qualifying homeowners would not be taxed if they repaid the withdrawals within five years.

Fossella's bill comes at a time when millions of homeowners are facing sharply higher monthly payments once the interest rates on mortgages reset over the next couple of years.