Savers Are from Mars. Debtors Are from Venus. Episode 4

Is Renting So Bad that You Would Steal?

You find a wallet. What do you do?

If you are Elizabeth Cabrera-Rivera, you steal Jose Lara's identity to commit loan fraud by getting a no-documentation mortgage ("no-doc mortgage") for a $419,000 townhouse in his name. Mr. Lara only discovered the plot when he received a $2,800 refund for closing costs and the jig was up for Cabrera-Rivera.

It gets even stranger.

Elizabeth Cabrera-Rivera committed the crime because she could not get a mortgage in her own name. However, she did not abscond with the cash. Nor did she try to get free housing by defaulting on the mortgage and stretching out the eviction. No, our heroine dutifully paid the monthly mortgage payments on time.

Yes, she was buying a townhouse for Jose Lara. Sadly, it sounds like she could have been very successful building equity/savings in her own name while renting. Instead, decades of her toil gets her to that magic moment when the mortgage is paid off . . . for someone else.*

How is that better than renting?

How brainwashed must you be that you "have to" have a mortgage, even if it is to build someone else's home equity?*

* Update 11/12/07: Cabrera-Rivera later transferred the deed to her name (see comments).

You Decide: The Best Con Artist Is . . .

An amateur or garden-variety fraud or con is when you find out too late that the fraudster emptied your bank account or stole your investment and disappeared. This is sloppy for the fraudster because now he/she is "wanted" by the law.

The "best" con artist is the worst for everyone else's safety.

The "best" con artist is the one who cons you so well that you do not realize that you have been conned, you profusely thank him/her, you eagerly return to be conned again an again, and you enthusiastically recruit your friends as new victims.

Millionaire Artist wrote:

“Girl power”, my [a@@]. I couldn’t decide what was more disturbing. Was it the fact that these women each paid $5K to join a pseudo-sorority for adults? That they felt a need to pay for friends? That they felt a need to pay for compliments? That what they “bought” boiled down to “self-esteem packaged for the idiotic”? And, oh lord, how self-congratulatory they were! They really thought they were doing something to improve themselves and the lot of women. “Your successes are successes for women everywhere,” said the Guru . . . .

What is the best con or who is the best con artist?

Remember that the best con will be very popular in a Gallup poll.

You decide: Is it a government program? "education"? real estate? cars? clothing?

(Uncivil comments are not welcome but "unpopular" comments might be necessary.)

Opt-Out of Junk Mail To Stop Identity Theft

Get Rich Slowly posted 2 useful links to stop unwanted credit offers and junk mail. You can use these opt-outs to prevent identity theft since dumpster diving for thrown-out junk mail (even ripped applications) is a tactic of identity thieves.

Credit bureaus opt-out from credit offers such as pre-screened or pre-approved credit cards (Federal Trade Commission (FTA) endorsed), or call 1-888-5-OPTOUT

Direct Marketing Association (DMA) opt-out from junk mail

See also: List of Identity Theft Blockers: How Many Do You Use?

List of Identity Theft Blockers: How Many Do You Use?

Here is a good list of precautions to take against identity theft from privacyrights.org.

I am still trying to find if various credit blockers will interfere with opening savings accounts.

Freezing Credit To Stop Identity Theft: Good or Bad for Savers?

A chastity belt for your financial reputation

Many readers of this blog probably have little interest in taking new debt and might be interested in the "credit freeze" which guards against identity theft by preventing anyone from opening new lines of credit without special permission.

My understanding is that you (or even an identity thief) could use your current credit card as normal but you would have to unlock your credit before getting new cards or opening a mortgage in your name. That sounds fine for people who dislike debt and rarely take new debt or rarely open new credit lines.

Does the credit freeze harm savers?

My question is: Since banks can run soft or hard credit pulls even when you give the bank money, will the credit freeze interfere with opening deposit accounts (savings, money market, CD) to save or invest money?

Do any of you financiers know the answer?

You Know Your Identity Thief

The Wolf in the Fold

Victims of identity theft often find that someone they know has committed the crime. Roommates, hired help, and landlords all have access to your home, and it is possible for them to access private information. Identity theft within families is also fairly common. This causes particular difficulties, because victims may be reluctant to notify the authorities or press charges. People are especially vulnerable when ending relationships with roommates and spouses (FRBB).

Handing your credit card number to a waiter or mail-order representative is necessary to charge something but I have raised an eyebrow when hearing that someone lent a credit card to a friend. Honest people sometimes get surprised by fraud because they go about their day without deception in mind. The other pitfall is the relationship that goes sour. Potential spite and revenge are good arguments against joint accounts. The identity-theft issue fits with long-standing debates about lending money to friends and merging finances with spouses.

Next: Freezing Credit To Stop Identity Theft: Good or Bad for Savers?

Avoid Debt “Anti-Scam” Scams

Everyone Wants To Believe in the Tooth Fairy and the Free Lunch

People who get themselves into debt problems often do so by wanting to see the best and ignoring red flags so they can sign on the dotted line and get instant stuff. When considering a contract or loan, there is a temptation to ask the right questions but accept dodgy answers that do not add up, so you rationalize that you “did your part” and any later problem will not be your fault. That is a self-deception because you are the one who will be left holding the bag.

Debt Relief: Out of the Frying Pan, into the Fire

People who get themselves in debt trouble are unfortunately likely to repeat the same mistake for the same reason by desperately wanting to believe that some debt-relief expert can provide a painless way out of a debt problem. Some companies charge up-front fees but offer no success guarantee. Some companies offer to take care of everything (sending the mortgage payments, negotiating with banks) but—as you discover too late—did not do so.

You are ultimately responsible and you suffer the consequences so the sooner that you accept responsibility and stop wishing for the too-good-to-be-true short-cut, the sooner you can establish a solid financial foundation.

Mortgage Foreclosures: Subprime and Job Loss Not the Real Reasons

As usual, the mainstream media manage to be several years late to the housing bubble story—and still get the story wrong.

The better than average Investor’s Business Daily helpfully mentioned that job loss might better explain recent foreclosures but even they missed the main point.

The borrower’s bad behavior is the main reason for the borrower’s bad situation.

Bad loan terms and job loss problems are only symptoms of the borrower’s bad behavior:

• If you chose bad loan terms of 50% interest but you only borrowed $1, it is unwise but not dangerous.
• If you lost your job a year later but only owed $1 and change, it is annoying but not catastrophic.

The true problem is overconsumption, buying a $500k house on a $250k budget.

Buy a $125k house on a $250k budget and adjustable rates or job loss will not mean foreclosure.

Danger: Preferred Providers Conflict of Interest

Previous: How To Protect Yourself from Fraud: Avoid Preferred Providers

This example of the dangers of preferred providers should interest everyone, especially recent home buyers.

Hat Tip: Marin Real Estate Bubble

More biased advice: “Savings” Pitch Tricks You into Overspending

How To Protect Yourself from Fraud: Avoid Preferred Providers

I previously warned about avoiding "preferred provider" lists for home-buying services (the ones that a realtor or mortgage broker might push on you): The recent student loan financial scandal reminds us that the warning applies in all your financial plans. In the student loan scandal, schools or their agents took kickbacks to push high interest rates or other bad terms on students. Today's NPR reported that 90% of students accept school's "preferred lenders" recommendations instead on shopping for themselves.

I will repeat the rule:

A "preferred provider" is preferred by the person making the recommendation--i.e. it benefits him or her but not necessarily you.


Important: This is not just about criminal fraud.

The fundamental lesson goes beyong legalities so do not trust the government to protect you either. Anyone who thinks that stopping the specific fraud in student loans will end the danger is missing the whole point:

The recommender's self-interest might be an illegal kickback but it also could be a perfectly legal and unregulated benefit such as easier paperwork for the recommender even if it costs you more.

This rule applies to everything including medical treatments and prescriptions.

The bottom line: Do your own homework.

Do not expect anyone to care more about you than you do.

Next: Danger: Preferred Providers Conflict of Interest