Avoiding identity theft

From my CBC radio national column, September 24, 2009:

The story earlier this week about a BC couple on the hook for $20,000 in loans after their identity was stolen should have all consumers on high alert. And that’s not just because of the money that Mark Gorst and Shannon Werry say was stolen from them. As they try to dig themselves out of their mess, they’ve lost their credit rating along with peace of mind.

Let's talk about identify theft. How do you define it?

This is where someone applies for credit in your name, and starts racking up charges without your knowledge. Sometimes this goes on for months or even years before you learn of the situation.

When it comes down to it, identity theft is a form of fraud…with someone pretending to be you for personal gain.

According to a piece I saw this week on CBC.ca, more than 12,000 people fell victim to identity theft in 2008, with losses close to $10 million. Now nationwide that does represent a huge amount of money, but if it happens to you, your life can be turned upside down.

What if anything can I do to protect myself?

First of all you need to take small precautions, like checking your credit card and bank statements regularly. You can do this either on-line or making sure you pay attention to when your credit card statements are expected to show up in the mail. If they’re late, you should call your bank or department store to check on their status.

You want to make sure somebody hasn't redirected the bills to another address, which they can use as a base to start the process of stealing money - or assuming your identity.

Plus, if you don’t have one, invest in a shredder and use it for everything from phone bills to credit card statements. Basically, if a document has your name, address, an account number or more on it, it should be shredded not tossed.

Keep your passwords private and your phone calls about your finances behind closed doors. Your bank tells you this – to NEVER share your PIN or secret passwords with even a spouse – but I know, it’s hard to do when you live with someone.

Also, don’t make calls to your bank or credit card company from your office or in front of anyone in your home such as a room mate or a spouse. If someone you know intimately, such as a co-worker, ex-spouse or roommate, they might easily be able to access your SIN, date of birth and if they know your secret password, they have the ingredients for identity theft.

So those are some small steps.

But I recommend taking another critical one, and that's regularly checking your own credit report.

How would I go about doing that?

You can do that at Equifax.ca or Transunion.ca. It will cost you about $24 each time for the instant online report, but it’s well worth it for the peace of mind. That way, if someone applied for credit in your name for example, your credit report would show that new account or it would show that some institution pulled your report therefore tipping you off that someone was seeking new credit.

If you check your report regularly, at least there would be minimal damage done.

Lastly, if you’re a known or highly potential identify theft candidate, alert both Equifax and Transunion in writing to document your potential situation to set up something called a fraud alert.

I've heard about credit monitoring services. What are they exactly?

These services - such as with Equifax and Transunion Canada--will alert you via email if there's suspicious activity on your account. Because these two services are also offered by the agencies that collect, report and keep track of your credit, are the best ones in my opinion, will alert you if credit is being opened in your name, offers some insurance if you are a victim of fraud and also offer access to your credit report and real people to talk to if you have a problem. They'll set you back $12 - $20 bucks a month.

Now I haven't signed up for a credit monitoring service. I'm quite happy to check in on my own credit rating. It's cheaper, and once every 3 to 6 months is more than frequently enough for me. But if you know you wouldn't keep up with checking your own as often, the monthly services might make sense for you.

What's to prevent someone from impersonating me to check out my credit score?

That’s a great question, but I’m not sure how much of an issue that is. If a would-be thief has all the info you’d need to access your account, why would they want to check your credit – they’d just go ahead and apply for some type of credit.

Just so you know, when you sign up for the first time with Equifax or Transunion, they’ll ask you for all your personal info such as your SIN, date of birth, address and then they’ll ask you for past credit info that only you should know…such as an old 10 year loan and payment and such to try and securely identify you. Once you’ve done this, you don’t have to do it again.

So if I do learn of suspicious activity in my accounts, what do I do next?

Call your financial institution and the police if you think it's warranted. Part of the problem with the B.C. couple is that by the time they had noticed the money was missing it was too late to proceed with charges. According to a local police officer, if more than a year had passed since the initial crime, it becomes harder to get charges approved by the Crown. So the sooner you know about the problem the better.

Is it time to invest in the stock market or stay on the sidelines?

From my CBC radio national column, September 24, 2009:

When G20 leaders meet in Pittsburgh today, they’ll be weighing whether or not to start scale back the stimulus packages that were announced after last year’s financial crash. But many experts are warning against throwing caution to the wind.
The advice could apply to individual investors as well as the world’s treasurers

With the stock markets performing so well recently, investors could be forgiven for thinking that good times are back. What are the people you pay attention to saying?

Here’s one person I pay attention to--David Rosenberg. He’s recently returned to Canada as chief economist and strategist at investment firm Gluskin Sheff after several years at Merrill Lynch in New York, where he was chief economist. Rosenberg was been credited with predicting the U.S. housing bust.at a time when many of his contemporaries were saying that the effects of the sub-prime crisis could be contained. At the time he was seen as being perhaps overly bearish, but events have vindicated him. .

So his forecasts command attention from the media and investors. And in the financial post this week, Rosenberg states that he thinks the market is overvalued

What’s his reasoning?

Equity prices are up something like 60 per cent from their lows in March, and that has Rosenberg concerned. He looks at something called the price-earnings ratio…this is something that looks at stock price and relates it to the amount of money companies are making. When you compare the prices some stocks are commanding right now to the amount companies are earning per share, he feels the increases just aren’t justified. In a recent note to clients, he’s quoted as saying that “there is too much growth and too much risk embedded in the equity market right now."

Markets generally increase (or decrease for that matter) for two reasons:

-The companies that make up the stock market are growing - people are buying their products/services or they’ve cut expenses.
-The second reason is that investors “think” the stock is a good deal. That’s when we get stocks increasing because of hype, fear and a bunch of other non-fundamental emotions.

When you look at the history of markets you realize that things don’t go up forever.
And so that’s why the cautions he raises make sense for me.

You really have to step back when you hear about double-digit gains and wonder if the time to get in is when everyone else is getting in or when everyone is getting out. That was the environment this spring. It’s quite the opposite now.

Any other insights from history?

This market, like many others, should be a reminder of the huge swings markets can take.

We just have to look back to the tech bubble which burst in the year 2000 and how many years of flat or negative numbers it took to finally get a profit on your investment. That market wasn’t even as bad as this one according to the experts and it still took a great deal of time to get your money back if you had invested right before the bubble burst.

Investors waiting on the sidelines might want to cool off and see this market for the erratic beast that it is. Just keep in mind that for most people a dollar lost is more important than two dollars earned.

And there’s one other historical event I want to remind everyone of….Any idea what happened 140 years ago today.?

Today is the 140th anniversary of the gold market crash of 1869, which led to a major stock market crash and became known as Black Friday.

The date is another good reminder of the boom-bust nature of markets, and the dangers of trying to chase big profits.

Unfortunately, when markets are exuberant, we as investors feel that they’ll be that way forever. On the flip side, when there’s nothing but bad news, like earlier this year, we think they’ll never go up. It’s a good reminder that investing in the stock market requires not only a strong stomach, but a great deal of caution.

Any final words of advice?

Yes, even the pro’s can’t successfully time the market. Just look at the poor performance of many mutual funds over the past year. So if they can't predict the markets, how can the average investor be expected to get it right?

Step back and keep in mind that a prudent, balanced approach to saving and investment is the best way to gain long term. That means looking beyond stocks. Adding other investments to your portfolio such as good old bonds, fixed income and even real estate are what you need if you're going to be able to weather financial storms in the long term.

Tough Questions Part I - End of life questions

From my CBC Radioactive segment with Peter Brown - October 1, 2009:

For the month of October, as Radioactive's personal finance columnist, I'm going to walk listeners through some of the toughest questions we need to ask ourselves and our loved ones when it comes to finance.

This week, we are going to ask the tough questions about end of life issues: 10 tough questions to ask yourself, your spouse, parent and siblings. There is no good time to really ask these questions, but they've got to be asked - and ideally when someone is in good health.

What's the first tough question I need to ask?

I think the first important question for your parents, spouse etc., What do you want done with your remains.

Is it cremation? If so, where would you like your ashes, fully intact in one container or, most places offer the large urn and a little one for the fireplace.

Is it Burial? If so, where? Do you have a plot already purchased?

And the other thing we need to take into account is religion - would you like a minister, what kind, a certain denomination, prayer service, wake, non religious, other?

What about when it comes to health care?

You need to look at living wills and personal directives. If there is one in place, people need to know where to find it and know which hospital to deal with, who's the family doctor? It's amazing how many adult children don't know this about their own parents.

What are some of the tough questions that come with personal directives?

Basically, what type of care and when would you like administered during a time of illness. Do you want to be resuscitated for example? If the answer is no, that needs to be known by all family members. If 911 is called for example, the ambulance drivers will always try to resuscitate. So if that isn't a wish, a document should be posted on the fridge in plane site.

While it seems that living wills and personal directives are more of a seniors issue, you never know what can happen and when. These are issues for every age group.

And people should talk to their loved ones about things like organ donation too. Your family should know what you want, and you should know what family members would like to do.

There are also Last rights, anointing, prayer - at a time of sickness, would you like someone called for prayer and if so, what type (denomination, minister, anyone?)

What about legal issues....what questions should we be asking there?

Everyone should have an enduring power of attorney. This is different from a regular power of attorney - say, you travel a great deal and have someone look after your financial affairs while you're away. In the event of mental incapacity, even if only for a short while, a regular power of attorney would cease to be legal. This is where an "enduring" power of attorney is needed. It only springs into effect during a mental incapacity. Please secure your own legal advice as each province and situation may be different.

Who would you like to make these decisions (financial and otherwise) in the event of incapacity?
And then you need to know if there is a will and if there is one, where it's kept? That leads us to the safety deposit box. If there is one where are the keys kept and where is the box itself.

Lastly, you'll want to consider special gifts. Do you have any that are essential to pass out? Where are your pictures, for final planning and more?

Here's a link to my top 10 tough questions. Ensure that loved ones know where it's kept - http://www.kelleykeehn.com/documents/Endoflifequestionstoask.pdf

Tune in next week for part two of four in our tough questions series. Each Thursday at about 4:10 on Radioactie Edmonton - 93.9fm and 740am. And be sure to send us your tough questions.

Canadians investing in US real estate - learn the facts before heading south

From my CBC radio national column, September 17, 2009:

As we anticipate another chilly winter, Canadians may be tempted to play let's make a deal on U.S. real estate. Should you play or walk away?

We've all heard the reports. The Canadian dollar continues to climb toward parity with the U.S. greenback, while American real estate is stuck at rock bottom. So with winter approaching, who could blame you for thinking it's the perfect time to swoop in on some property in the sunny south. But before you do, here's some words of advice for would-be buyers.

We've heard this week that home prices are up in many parts of Canada. What's the U.S. real estate market looking like these days?

There have been huge dips in U.S. home prices over the past couple of years-especially in the south.

Home prices in Las Vegas for example have dropped by more than fifty per cent from their August 2006 peak. Prices in Phoenix are down just about the same amount.

With numbers like these, it's no wonder some Canadians are taking note. It's tempting, especially with our strong loonie allowing a buyer to get more bang for their buck than in the past, but there's certainly more to the story.

The head of the U.S. federal reserve, Ben Bernanke, said this week that the recession may have come to an end south of the border. Some might think that's a signal to buy now, before prices start to climb again. What's your take?

Although there have been recent reports of modest increases, the U.S. real estate market is still volatile.

According to the Wall Street Journal, home prices could drop again as job losses drive foreclosures higher. Mortgage defaults and foreclosures aren't likely to peak until unemployment ebbs.

Even when the U.S. economy starts to grow again it will take a while for job creation to kick in. That's why many experts say it really is too soon to see this juncture as a turning point.

Recently, I spoke with Canadian real estate expert, Don Campbell, president of the Real Estate Investment Network www.reincanada.com. He warns that people must look at the precarious financial situation of many U.S. homeowners.

Close to a quarter of mortgage holders in the US are upside down on their mortgages. That means they owe more on their mortgage than the property is worth. That was as of the second quarter of 2009. So they're very recent numbers.

And according to Deutsche Bank this figure could double, with almost 50 per cent of mortgage holders being under water by the first quarter of 2011.

Finally, a Globe and Mail article a few weeks ago, said that $3.4 trillion worth of US houses are at risk of default. So prices could drop still further.

That's a strong cautionary note. What else should potential buyers be aware of?

Three additional considerations: residency, health care and taxes should be other major considerations.

1. First, you can't simply up and move to the US.

There's a 183 day rule for visitors. Non citizens can't be in the U.S. for more than six months of the year.

So, what will do with that property the rest of the year? Rent it out, pay someone to maintain it? Consider the utilities and up keep needed.

2. Then there's the fact that you'll need health insurance when you're there. And what if you have a health issue that stops you from visiting your property at all?

3. And then last but never least, there's the tax issue. A Canadian who owns US real-estate will face capital gains taxes in both countries, when they eventually sell. Individual states also levy taxes of their own, and then there are estate taxes to consider, if the place as to be sold after a death.

All these issues depend on your personal tax rate, the state in which you buy and the cost of the property.

Added together, these factors add up to a complex buying decision.

What about trying to arrange financing in the US. What should people be aware of there?

If you're looking to the US, you may well have to come up with your own financing from Canada - don't expect to get a loan down there.

Final words of advice

Here's another thing to consider. Whenever you buy in another country, currency risk come into play. If our dollar continues to rise against theirs, you'll need to earn much more on your actual investment to get ahead.

Here's some additional words of wisdom from Don Campbell. He points out with no health care issues here at home, low interest rates, some deals still to be had on real estate here, and with better fundamentals in place, Campbell urges those interested in investing in real estate to look here first before ever being tempting to do so down south.

If, after all this is taken into account and you're still eager to escape the Canadian winter, you might consider renting. After all, it's a great deal with no risk.

Reverse mortgages - advantages and disadvantages

From my CBC radio national column, September 10, 2009:

You’ve probably seen them…those commercials telling seniors that thanks to their paid-off home, they’re sitting on a gold mine. Why not take a vacation, put the grand kids through school or help your kids with a down payment on a home of their own. The products these ads are promoting are called reverse mortgages, and here you'll find the straight goods on them.

So what exactly is a reverse mortgage?

• They’re an option for homeowners over the age of 60 years old.
• A senior is able to tap into the equity in the home up to 40% of its value.
• The ads are targeted at people who have already paid off their homes (although you can still qualify if you have an existing mortgage.)
• People taking out a reverse mortgage don’t make any payments unless they sell or move. Repayment would also be required in case of death. or pass away.
• The amount a person receives can be paid in a lump sum or even monthly or annual instalments.
• The company that most people know is CHIP, or Canadian Home Income Plan. But there’s another firm that offers reverse mortgages, called Seniors Money.

I must stress the fourth point that yes, you don't make a payment during the life of the reverse mortgage (unless you sell, move or pass away) and thus interest is compounding during that time period. This is the lure of the reverse mortgage but it needs to be fully comprehended by the senior that the longer the reverse mortgage is in place, the more it's depleting equity in your home.

Why would someone consider this strategy?

This might have appeal to cash-strapped retirees. If someone wants to stay in their home and simply doesn’t have the monthly income to manage the bills, wants to renovate their home, perhaps needs money for home care assistance, it could be an option worth considering.

What the experts have to say about reverse mortgages

I had last week with PJ Wade. She’s the author of Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!. As an expert on the subject, she stressed that education is key. She points out that many seniors don’t realize that, while a reverse option might end up being the right choice for them, there are other options they should know to consider first. She suggested that seniors start by looking five years into the future.

So five years before they think they might need to tap into the value of their home, seniors should gather all available information on the options to them—everything from reverse mortgages to home equity loans.

This way if someone tries to sell them on a product like a reverse mortgage down the road or a desperate need comes along, they’ll be well prepared. We generally don’t make good, informed decisions when we’re stressed or under pressure.

The other thing to think about is inheritance. Maybe you want the value of the home to go to your children down the road or maybe that’s not a priority. But it should be thought about in terms of your advance or estate planning.

Consider that the sales pitch for these products is often "well, in theory your home will increase in value as the interest is accrued, so you could actually not dip into your equity at all." Sure, that's possible, but we all know that "in theory" and "in reality" are two very different things. We've also seen housing prices slashed in many provinces.

What do some other financial professionals have to say about reverse mortgages?

The big criticism of reverse mortgages are the fees involved.

Besides PJ Wade, I also spoke with Keith Costello, President of the Canadian Institute of Financial Planners. He cautions the high fees that exist with reverse mortgages including closing, appraisal, legal and administrative costs. These are all upfront costs. So you have to be aware of the fact that these fees will be taken right off the top of the amount they give you.

I called CHIP myself and asked about fees.

First there’s a fee of $1,495, that includes their legal and administration costs. Anyone arranging a reverse mortgage will also need to pay a lawyer – that cost of that typically ranges from $300-600. And lastly, there's an appraisal, which is also out of pocket - they range of $175-400.

Also, the interest rate on reverse mortgages tends to be higher than what you would negotiate for a traditional mortgage with your banker (see rates below.)

Finally as with any loan, which is really what a reverse mortgage is, the responsible use of the money is really important. What if all the funds are used on vacations and other spending and the senior out lives that money?

As a precaution, Mr. Costello, suggests that although you might be able to get up to 40% of the value of your home, ONLY take what you need.

What other options exist?

There are lots of other options that might exist including a line of credit or traditional mortgage with your bank if you have the cash flow to cover the payments.

Or you could consult a CFP might be able to help you restructure your investments to free up cash flow.

And when it comes to needing funds to renovate, a reverse mortgage might make sense if the money is being used to increase the overall value of the home and your enjoyment of living in it. But seniors should also remember that there might be some government grants out there that could pay or help them pay for things like windows and furnaces for example.

Would I recommend my mother take out a reverse mortgage?

As with any product, there’s no good or bad out there, it’s what’s good or bad for one’s situation.

If she had no other option, desperately needed the money and no other sources existed and she was adamant about staying in her home, then maybe yes. But, having said that, I would advise her that it should be a last resort option, not a quick fix as the commercials portray due to the high costs up front and compounding interest over time.

ADDITIONAL BACKGROUND:

More CHIP facts:
-they do have approx 7,000 rev. mortgages on the books
- totalling approx $833 million dollars
-their rates as of September 9 were more than RBCs for example
-As of Sept 10th, 2009 - CHIPs rates - 5.3 for variable, 6mth is 6.25, 1 year is 5.95, 3 year is 6.95 and 5 year 7.50

RBC's rates for example (Sept 10th, 2009 posted rates)
6 Month 4.55% 4.05%
Closed
1 Year 3.70% 3.20%
2 Year 3.85% Call for details
3 Year 4.35% Call for details
4 Year 4.94% 3.89%
5 Year 5.49% 4.19%

Advantages and disadvantages of using a mortgage broker

From my CBC radio national column, September 3, 2009:

To use a mortgage broker or not to use a mortgage broker? Once you've got that dream house picked out, here's some advice on how to pay for it .

There was news last week that the federal privacy commissioner is investigating a number of mortgage brokers because of the way they may be treating client information. So today we're looking at the advantages and disadvantages of using a mortgage broker. Here's everything you need to know before you sign on the dotted line.

The mortgage broker sector has grown in recent years

Once fairly rare, the use of brokers has become a lot more common, especially among younger, first-time buyers.

While mortgage brokers are responsible for about 30 per cent of the mortgage business in Canada, a CMHC survey from earlier this year showed that 44 per cent of first-time
buyers used mortgage brokers in 2009. Compare that to 35 per cent in 2007.

So the share of the $235 billion mortgage market handled by brokers is clearly growing.

Advantages of using a mortgage broker

There are many reasons for using a mortgage broker.

First, they can shop your mortgage to all of the big banks, non-traditional and event private lenders, so that raises the competition for your business.

Second, by pulling your credit report only once, they can shop your deal to numerous institutions without hurting your credit score.

Lastly, their marketed advantage is that they'll do the rate negotiation for you. If you have good credit, a stable job with good income numbers - basically, all the criteria the big banks are looking for and don't have the time or inclination to haggle with the banks over your interest
rate, then they can be a great idea. You know you're getting the best rate they can find.

That makes mortgage brokers sound like they could be a good option for many people. So why has the privacy commissioner decided to take a closer look at the business?

According to a Globe and Mail report out early this week, the privacy commissioner is auditing a number of mortgage brokerages because of concerns about the security of borrowers' personal financial information. The audit, which began this month, is looking into possible misuse of consumers' information. The commissioner is concerned about the potential for identity theft and fraud if this information ends up in the wrong hands, which is a serious issue. Here's a link to the Globe article - http://www.theglobeandmail.com/report-on-business/ottawa-probes-mortgage-brokerages/article1270036/

We've all heard about the sub-prime mortgage crisis in the US, with some of the blame being placed on overzealous brokers. So what should you look for if your considering using a mortgage broker for the first time?

Most mortgage brokers are above board. And many are in favour of tough privacy rules in order to protect the integrity of their industry.

Still you have to protect yourself. And if the main reason you're considering using a mortgage broker is that you're not an ideal candidate for a conventional mortgage at a Schedule one bank - that's the big guys that have to follow the rules of the bank charter--you should know that the broker may end up presenting ideas for private mortgage options, some that could be defined as sub prime.

This might seem like a good thing, because at least you're getting access to credit. But even though as a eager home owner you just want to get your hands on that house now, you need to step back and ask, at what cost?

Getting into a mortgage like this can be extremely expensive with high fees and interest rates.
So although home ownership is a worthy goal, not at any prince. And remember, the job of these individuals is to get you into a mortgage, period.

Anything else to keep in mind?

Yes, it's important to remember that you may not be getting a full selection of quotes. For example, the Bank of Montreal recently decided to stop offering its mortgages through mortgage brokers. This wasn't due to a specific problem with specific mortgage brokers; it was more of a
strategic decision about how they would sell their products. So you should know you're not going a full sense of what's available if you limit your mortgage shopping to one broker.

How should someone proceed if they want to do their own mortgage shopping?

First, get a copy of your credit report and score. You can do that for around $24 bucks at http://www.equifax.ca/ or http://www.transunion.ca/. With your score in hand, when you shop around at the different banks, you can tell them that you're not wanting to go through the approval process just yet. If your banker has your score and basic details such as income, net worth, etc. they can give you an idea of what rate they'll give you and if you'd be approved. Once you decide on a bank to deal with, they will have to pull your credit report, but by bringing it in yourself and asking doing a "pre approval" interview, you won't have a bunch of banks pulling your report and pulling down your score.

Some final tips for mortgage shoppers

Get on the internet before you call your banker and be armed with the best rates on the market. Remember, like everything else in your financial life, your mortgage is negotiable. Just asking for a simply rate reduction from your bank can save you thousands And don't feel you have to use the mortgage broker recommended by your real estate agent.

If you do choose to opt for a mortgage broker, I'd suggest calling up a Certified Financial Planner for some referrals. Unusually these pros have vetted a few and always shop around. A CFP isn't generally allowed to be paid a referral fee, so, they're likely to give a more honest referral. Plus, they have no vested interest in getting the deal approved, while the real estate agent does.

Before you even apply for a mortgage with these folks, get the bottom line costs to you, their fee, hidden fees, the interest rate and details if the deal will be with a sub-prime lender.

Attention students! Money saving with tips

In the Ottawa Sun and the Winnipeg Sun today, you can check out my tips for students:

http://www.winnipegsun.com/life/2009/09/05/10758931-sun.html