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Homes in limbo, jobs at risk Foreclosure freeze


threatens security clearances for some federal workers


BY DINA ELBOGHDADY AND DANA HEDGPETH


The sudden moratorium on many foreclo-


sures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty cloud- ing their finances, according to lawyers who handle these cases. Employees with security clearances are


monitored by the government for financial problems that would make them vulnerable to bribery or blackmail. And with many financial companies adopting some form of foreclosure freeze in recent weeks, it’s taking longer for some delinquent borrowers to resolve their mortgage cases and put their troubles behind them, the lawyers said. This problem is especially acute in the


Washington region, home to nearly a third of the the nation’s 854,000 employees with top-secret clearances. “Resolving debt ismore complicated when


the lenders are in paralysis,” said Dennis Sysko, a national security lawyer in Glen Burnie. “The longer it is unresolved, the longer the cloud remains.” Lawyers in the Washington area said they


are starting to field inquiries about foreclo- sure delays from workers who have security clearances or are trying to get them. Many don’t know whether they should be elated or concerned by the turn of events. “I’m just really confused because nobody


has made clear to me what this foreclosure delay means,” said Brian Young, a federal employee fromCapitol Heights. Young bought his first home in October


2007 with a first and second mortgage from Bank of America. At the time, he had the interim secret clearance he needed to do his electrical engineering job at a Defense De- partment agency, he said. He applied for a permanent clearance soon thereafter. When the permanent clearance did not


come through as quickly as he’d hoped, Young said, his paywas cut, and he fell behind on his mortgage in August. He was engaged in talks with his lender to modify his loan when his security clearance was revoked. His supervi- sors suspended him from his job, citing him as a financial risk, mostly because of his mortgage problems, he said. Young is appealing the decision. But as he


waits, he’s fallen further behind on his mortgage and other bills, including child support payments.Bank ofAmerica informed him that it would expedite foreclosure and seize his home, but then the lender suddenly announced a halt to all its foreclosure sales nationwide. This week, the bank said that it would restart foreclosures in some states, but not yet in theWashington region. “This is just dragging everything out, and


my credit keeps takingmore hits,” Young said. “If it helps me in some way, cool. But I just don’t know if it does.”


The moratorium comes to D.C. Foreclosure delays started when Ally Fi-


nancial, formerly GMAC, suspended evic- tions last month after concerns arose about flaws in court documents used to seize homes. The firm limited its freeze to the 23 stateswhere lenders have towin a court order to initiate a foreclosure. Othermajor lenders, including J.P. Morgan Chase and Bank of America, also suspended foreclosures in those states.


BILL O'LEARY/THE ‘WASHINGTON POST


“Nobody has made clear to me what this foreclosure delay means,” said Brian Young of CapitolHeights, who is suspended from his federal job because of mortgage problems.


Virginia, Maryland and the District were


not immediately affected by the lenders’ actions. But then Bank of America suspended foreclosures nationwide. Others have since selectively halted foreclosures here. And at least two area circuit courts — in Prince George’s and Montgomery counties — are reviewing cases for paperwork flaws. Under government guidelines, the failure


of security-cleared workers to live within their means and pay off debt suggests poor self-control, bad judgment and an unwilling- ness to abide by rules, raising concerns about their ability to protect classified information. Only a few government agencies make


public their decisions to revoke or deny security clearances. Among them is the Defense Department’s Office ofHearings and Appeals (DOHA),which reviews cases involv- ing contractors for the Pentagon and about two dozen agencies, according to lawyers. From January 2006 through June 2010,


about 70 appeals involving foreclosures and other distressed saleswere considered by that office, and security clearances were revoked or denied in 62 of those cases, according to Sheldon I. Cohen, an Arlington lawyer who recently wrote a paper about the rulings. “In many cases, they act as a court of


morality,” Cohen said. Based on his study of the DOHA appeals cases in the past 41/2


years,Cohen said that the


number of security clearance denials and revocations has kept pacewith the number of mortgage defaults, foreclosures and other distressed sales in the country.


‘Emotionally charged issue’ The number of security-cleared workers


who are in trouble with their loans is not public. But John P.Mahoney, a lawyer at Tully Rinckey in theDistrict, said there is no reason to believe that these employees are insulated from the problems that plague the housing


market at large. “Now they are concerned that their clear-


ance will be pulled or they will be fired because their real estate investments have gone bad,”Mahoney said. “It’s a very emotion- ally charged issue, because some of these people have had high-level clearances for decades and never dreamed theywould face a problemlike this.” Twoweeks ago,Mahoneywas contacted by


a government contractor panicked about the payments she’s missed on three investment properties she can no longer afford. She can’t refinance or sell the homes because each has lost value. The contractor,who asked not to be named


for fear of losing her job, said in an interview that she has had a security clearance formore than 20 years. She is talking to Bank of America, her lender, about modifying the loans to avoid foreclosure. “I’m hoping the freeze will work for me


instead of againstme,” she said. But anything that keeps her fromresolving


the problems leaves her in limbo. And that means itwill take thatmuch longer for her to regain her financial footing, reestablish her credit and reassure the government that she’s trustworthy. “If the foreclosure moratorium continues


and she is unable to successfully modify her loans, she’s left with the financial concerns that could lead to her termination,”Mahoney said. He added, “Action needs to be taken, a government-wide approach, so that people who add value to the government’s mission and have a long record of trusted service don’t lose their jobs for no other reason than an economic downturn.”


dina@washpost.com hedgpethd@washpost.com


Staff researcher Julie Tate contributed to this report.


Title insurer puts conditions on foreclosure sales


BY ZACHARY A. GOLDFARB AND JIA LYNN YANG


The country’s largest title insurer said


Wednesday that banksandother lendersmust vouch for the accuracy of their mortgage documents before the firm will write insur- ance for a foreclosure sale. Fidelity National Financial announced the


policy change — the strongest move yet by a title insurer to protect itself from possible losses — in a memo to its employees and agents, according to Peter Sadowski, the com- pany’s chief legal officer. Recent reports of flawed paperwork have


particularly worried title insurers, who are critical in the home-buying process. Lenders require buyers to buy coverage in case there is a dispute over who owns a home.


If there proves to be any problem with the


accuracy of a title because of shoddy paper- work, the lenders would be responsible for losses under FidelityNational’s newpolicy. “We are obviously reading the same thing


that everybody else is about investigations by attorneys general and other regulators into this, and there has been a certain cloud put on [lender-seized] properties going forward, and we want to make sure that cloud is lifted,” Sadowski said. A major insurer, Old Republic National


Title Insurance, said this month that it would not back homes foreclosed on by J.P. Morgan Chase, which halted seizures in some states after paperwork problems surfaced. And Fi- delityNational hasanagreement withBankof America that the bank must sign warranties on every foreclosure sale, Sadowski said.


InWashington, federal officials addressing problems posed by the flawed foreclosure process said Wednesday that they did not think it presented a grave danger to the financial system, though they had not com- pleted their assessment. “Wehave not found evidence at this point of


a systemic issue,” said Shaun Donovan, secre- tary ofHousing and Urban Development, at a WhiteHouse briefing. The officials said they hoped that govern-


ment regulators would complete their review of the breakdownin the foreclosure process by the end of the year. Separately, federal investi- gators are examining whether companies committed crimes when submitting foreclo- sure documents.


yangjl@washpost.com goldfarbz@washpost.com


DAVID GOLDMAN/ASSOCIATED PRESS


Apassenger checks in at the Delta Air Lines ticket counter in Atlanta. Delta’s third-quarter results exceeded analysts’ forecasts.


BANKING


Light trading hurtsMorgan Stanley results MorganStanleybecame the lat-


est investment bank to report weaker resultsWednesday froma summer trading slowdown. The bank’s net loss applicable


to common shareholders was $91 million during the quarter, compared with earnings of $498milliona year earlier. Morgan Stanley would have


earned a profit if it weren’t for special charges it took to cut the value of an investment it plans to


ALSOINBUSINESS


l Graco recalls 2 million stroll- ers: Baby-gearmaker Graco is re- calling about 2 million strollers after receiving reports that four infantsdiedinthe strollers. The Consumer Product Safety


Commission, which announced the recall Wednesday, said if ba- bies aren’t strapped in properly, they can slide through the open- ing between the stroller tray and seat bottom. The deaths occurred


from2003 to 2005. The recalled strollers are ver-


sions of the Graco Quattro Tour and MetroLite, all made before 2007. The recalled strollers were made before the development of a voluntary standard requiring a larger opening.More information can be found at Graco’s Web site, www.gracobaby.com,orbycalling 800-345-4109.


—AssociatedPress Faster Forward ROB PEGORARO Excerpt from voices.washingtonpost.com/fasterforward


Oh, yes, they stillmakecomputers Incase you’dforgottenthat the company once knownasApple


Computer stillmakes computers,Apple executives spent anhour anda half onWednesday introducing a lineupofnewMachardware and software. But, as youmight expect froma firmthatmaynowbe best knownfor


its iPhone,many of these releases owe a greatdeal toApple’smobile devices. Startwiththe lastproducts the company introduced: twonew


versions of itsMacBookAirultralight laptop.Chief executive Steve Jobs invitedanaudience atApple’sCupertino,Calif., campus (andApple userswatching over aWeb video feed) to imagine the laptops’ origin: “Whatwouldhappenif aMacBook andaniPadhookedup?” The result is apair of laptopsno thicker than0.68 inches—almost as


thinas some smartphones.Theyuse flashmemory for storage instead ofmechanicalharddrives, the standardonthepriorAir thatApple last updatedinOctober 2008. Jobs saidthe twonewAirs—a 2.3-poundmodelwithan11.6-inch


screen, starting at$999with64 gigabytes of flashstorage, anda 2.9- poundversionwitha 13.3-inchscreen,pricedat$1,299 andup—can stay asleepinstandbymode for 30days,withanactive battery life of five to sevenhours. Apple’s event startedoffwitha recitationofnumbers touting the


continuedgrowthandrelevance ofApple’sMac business.Chief OperatingOfficerTimCook saidtheMac amountedto a thirdofApple’s revenue inits last fiscal year, or about$22 billion.Cook thentoutedthe consistent growthofMacmarket share, a topic the company once preferredto avoid. It’snowupto 20.7percent of theU.S. consumer market,he said, citingNPDGroupresearch. That’s yet anotherway the iPhone folks bear little resemblance to the operationonce routinelydescribedas “beleagueredAppleComputer.”


sell and the changing value of its own debt.Earnings fromcontinu- ing operations totaled $313 mil- lion, down 67 percent froma year earlier. LikeitsWallStreetcompetitors,


Morgan Stanley was hurt as cus- tomers cut back on investing this summer because ofworries about the economy and a general lack of the volatility that often propels trading.


—AssociatedPress VU AIRLINES


Carriers’ shares soar on strong results Delta, US Airways and the par-


ent companyofAmericanAirlines all posted higher-than-expected profits for thepeak summer travel season, sending airline stocks sharplyhigherWednesday. Delta said it earned $363 mil-


lion in the third quarter. Not counting one-time costs, it earned $1.10 per share, well above ana- lysts’ forecast of 94 cents per share.American parentAMRsaid it earned $143million, or 39 cents per share, above estimates of 32


A15


10-YEARTREASURY UNCHANGED, 2.51%YIELD


CURRENCIES $1 = 81.18 YEN; EURO= $1.395


DIGEST


centsper share. Doug Parker, chief executive of


US Airways, said that despite a sluggish economy and relatively high fuel expenses, airlines are reaping big profits by cutting costs, raising money from fees and growing smarter about ticket pricing. Delta shares climbed 10.9 per-


cent, to $12.97; AMR soared 12.6 percent, to $7.34; andUS Airways Grouprose 7.4 percent, to$10.97. —AssociatedPress


JOHN TRAVOLTA PROFESSIONAL PILOT


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