Mortgage interest rates are rising and home sales are slowing, leading economists to argue the current red hot housing market may be headed toward a correction. Most note they don’t fear the same giant bubble burst of 2008, but that doesn’t mean some individuals who got themselves into trouble with a high house payment or more house than they could afford won’t find themselves in trouble.
True or False: Because a mortgage is considered good debt, housing payment issues are unlikely to affect your security clearance.
We frequently talk about how not all debt is created equally when it comes to the security clearance process. High consumer debt, defaulted student loans or a failure to pay taxes can often be seen as red flag financial issues. But when it comes to debt, the whole person truly does apply – the government will consider not just where or who you owe, but what steps you did or didn’t take to mitigate debt issues.
A recent Defense Office of Hearings and Appeals security clearance revocation case highlighted a security clearance holder who had financial issues, which he argued were related to carrying two mortgages. The individual had 13 delinquent debts totaling approximately $81,000. The applicant didn’t dispute the debts, but said they were caused by carrying two mortgage balances, one caused by moving and being unable to sell his other home.
Often one of the best arguments to mitigate potential financial issues is noting circumstances that happened beyond the applicant’s control. In this case, the applicant was laid off for three months at one point, and also relocated to pursue a new job. But the court couldn’t find any indication that moving prior to selling the first house was necessary, or evidence the individual was unable to sell the first house. They did find that the individual’s decision to stop paying his credit cards, and also to not file for bankruptcy were both within his control.
false: defaulting on a mortgage could cost you your clearance.
Post 2008 market crash there was a long tail left by security clearance holders who found themselves underwater in their houses and unable to pay their mortgages. Unfortunately, some of those individuals also found themselves unable to keep their security clearances. Defaulting on your house or running into mortgage-related financial issues aren’t necessarily going to cost you your clearance. But if you want to keep your eligibility, now is the time to start preparing to ensure you’re on good financial footing. With high housing prices leaving many sitting on a good deal of equity, the cash-out refinance is growing more popular. But don’t take out a mortgage you wouldn’t be able to pay if you found yourself laid off, or forced to relocate. Stock your emergency fund before making a big purchase with that equity, and get your financial ducks in a row.
The reality is the debt is rarely the issue – it’s the steps the applicant did or didn’t take to address it. Documentation is also key. If you have to move – and are unable to sell your first house – document those realities with qualified third parties, like a real estate agent. In this case, the clearance holder would have been better off renting in the city he relocated to while he waited for the right time to sell his old house.
Whether the current red hot housing market crashes or just resets, some security clearance holders are likely to find themselves with some real estate related financial struggles. Just make sure you’re documenting all of the what and the why’s now – before you have to start asking yourself how in the heck you got into a financial pickle 12 months from now.
