Fannie Mae and Freddie Mac, combined, own or back up some $5 trillion dollars of debt. That is about half of ALL the mortgages in the U.S. They have already lost some $11 BILLION since the current mortgage/credit crisis began, so it is easy to see why there is profound concern about their fiscal health–or lack there of.

Concern turned to horror today after the New York Times reported that the U.S. government is thinking about a takeover of the mortgage giants–placing them in a conservatorship.

Should that happen, the shares of both could be worth almost nothing and taxpayers, you and me, would have to pick up the tab, says the Times, for “any losses on mortgages they own or guarantee–which could be staggering…”

This news brought about what the AFP news agency referred to in a headline as a “meltdown” of the share prices of both Fannie and Freddie.

According to Reuters, “Fannie shares closed at $10.25, down some 22 percent but well above the session low of $6.68. Freddie closed at $7.75, down 3 percent, after touching a low of $3.89 earlier in the session.”

And, here is the most amazing part of the story. Freddie and Fannie have lost almost 90 percent of their enture value just since August, says Reuters.

Doubts about bailout

As the day drew to a hectic close, Treasury Secretary Henry Paulson sent out signals that it is not likely there will be any federal bailout–However, Sen. Christopher Dodd of Connecticut, who is chairman of the Senate Banking Committee, said he spoke with both Paulson and Fed Chairman Ben Bernanke and that they are looking at options that would include “opening access to the discount window,” Reuters reports. The discount window allows the Fed to act as an emergency lender for the banking system.

Meantime, both Fannie Mae and Freddie Mac insisted they have enough capital to keep going and Sen. Dodd said both are “fundamentally sound and strong.”

Although both were originally formed by the federal government, they now function as private corporations, though there has always been an assumption that the government would never let either go under for fear of what might happen to the entire financial system in this country and, indeed, around the world.

How they got into trouble
To understand how they got into trouble, you must first understand what it is they do. Both buy up literally hundreds of billions of dollars in mortgages–then repackage them as securities.

In some cases, they hold on to these new securities, but they also sell them to investors.

That is why when the subprime mortgage crisis hit,Fannie and Freddie were hit hard. And, says the New York Times, “analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares.”

Stocks tumble then regain

At first, the fears of a Fannie/Freddie implosion plunged the Dow Jones Industrial Average down more than 200 points…but, by the end of the trading day, it closed down “just” 128.48 points.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Fannie Mae & Freddie Mac: What Will The Feds Do?

If you’re covered by a health plan, you’ve probably encountered the words deductible, co-pay, and co-insurance a number of times when examining your bills, paying your doctor for a visit, or simply looking at the benefits package from your employer. These terms can be a bit confusing, and with all of the limits, maximums, and different coverage options, it is important to understand what they mean so you can obtain the best coverage for the right price.

When looking at your health insurance options, it’s important to go beyond the premium. The premium is the amount you pay each paycheck or month just to have the coverage. Obviously, you want the lowest premium you can get for the coverage you want, but you really need to look beyond that. Saving $20 a month on your insurance premium may end up costing you hundreds of dollars in co-pays or out-of-pocket expenses. So, let’s take a look at how you can make sense of all these terms.

Defining the Terms

Deductible

This is probably the most straightforward, and easiest ways to change the premium on your policy. The deductible is the amount that you need to pay for a claim before the insurance kicks in. If you have a $50 deductible and you are billed for $500 in services, you’d need to pay $50 out of pocket before the remainder is sent off to the insurance company.

Obviously, the higher the deductible you choose, the lower your premium will be since you’ll be covering more of the expenses out of pocket. So, you have to be careful. If you choose a high deductible in an effort to keep premium costs down, a period of poor health or unexpected medical treatments could add up quickly.

Don’t forget the maximums. Deductibles usually have an annual maximum, for both individuals and families. When comparing plans or options within your plan, determine how likely it would be that you’d reach those maximums, and if two plans have different maximums, think about which one provides the best cost-to-benefit ratio.

Co-pay and Co-insurance

The co-pay is probably another common term you’ve heard, and have probably paid a number of times without thinking much of it. Co-pay and co-insurance are basically the same thing, but cover different items. In either case, this is the amount of money you have to pay for a claim or service rendered. The difference is that a co-pay is typically a flat dollar amount for a specific item such as an office visit, exam, or prescription. Co-insurance is typically based on a percentage. This means that you’re responsible for a certain percentage of a claim, and the insurance provider is responsible for the rest.

Again, when comparing plans, the co-pay amount or co-insurance percentage can play a big role in how much your premium is. A plan with an 80/20 co-insurance (insurance company pays 80%, you pay 20%) will have a higher premium than a 50/50 plan, and so on.

Compare All the Numbers

So, when you’re exploring your health insurance options, it pays to look at more than the premium. While the premium directly affects your bottom line, saving a few dollars on the premium could cost you much more in the long run, and paying a higher premium for coverage you might not need may also cost an unnecessary bundle.

This is especially important if you have a certain condition that requires specific tests or drugs, or if you are planning on having a baby, as the amount of coverage provided for these items may require digging a little deeper than glancing at your premium. So, take the time to completely understand your health benefits, and you can be sure that you’re getting as much coverage as you need, and paying no more than you have to.

Comparing Deductible, Co-Pay, and Co-insurance When Looking at Your Health Insurance Benefit Options

I freaking love this.  One of the topics that I have seen frequently on the PF blogosphere is how little financial education there is for America's youth, and how that leads to poor decision making as adults.

In a reversal of roles, High School Freshman and Teen Columnist, Emily Hu, writes For Adults, It's Payback Time.

A brilliant nugget from Miss Hu's article: 

"It comes down to this: Once upon a time, when people were forced to really consider what they could afford and credit actually counted for something, people bought houses they could live in for a few years."

I made 12 phone calls today. 2.5 hours of talk time. Here’s what I learned:

1. All mortgage companies cost the same-ish.  If their rates were lower, their closing costs were higher.  If their rates were higher, the closing costs were lower.
2. Some mortgage companies sell your loans.  3 of the mortgage companies I called today gave me an unsolicited aside:  “We buy loans.  We don’t sell them.”  Does that mean that you should always go with a direct lender?  Nope.  It just means that the mortgage company might not be able to view or change things if the mortgage is owned by someone else.
3. You don’t need to give out all your information (address, social security) to get rates and closing costs.  You can get ballpark numbers as long as you provide the purchase price, the down payment amount, and the type of mortgage.
4. If you call a company and they won’t give you any estimated numbers without giving all your information, hang up.  Call again.  A different mortgage specialist will be glad to help you without giving all your information.
5. Closing cost fees are where you can differentiate a mortgage company from another.  Ask the mortgage people to break down their closing fees.  Fees can include:
   • Property appraisal
   • Credit report
   • Lender’s inpsection
   • Mortgage insurance application
   • Assumption
   • Mortgage broker fee
   • Tax related service fee
   • Application
   • Commitment
   • Rate lock
   • Processing
   • Underwriting
   • Wire transfer
   • Abstract or title search
   • Title examination
   • Document preparation
   • Notary
   • Attorney
   • Title insurance
   • Recording
   • City/county tax stamps
   • Transfer tax
   • Survey
   • Pest inspection
   • Condominium application
   • Prepaids for interest
   • Prepaids for hazard insurance
   • Prepaids for property taxes
   • Prepaids for mortgage insurance
   • Prepaids for flood insurance
6. The rates and payments assume you have great credit and good stability.  They want to quote you the best rate and closing costs possible so they pretty much assume you’re a model citizen.
7. Lenders don’t like it too much if you’re quitting your job and you don’t have a job secured yet.  Hopefully you have a wife or wife-to-be who looks more stable to lenders.
8. They ask you if the down payment is gift money or if you saved it on your own.  No one gave me a clear answer on why they ask that question.
9. Do your research even if your wife-to-be’s sister’s soon-to-be husband is a mortgage specialist.  You never know…
10. Every mortgage person you talk to will give you a piece of advice.  The advice that resurfaces the most is probably important.

Did I apply for a mortgage yet?  Nope.  This whole day just narrowed down my choice to 2 or 3 mortgage lenders.  Time to talk to Miss Soon-To-Be-Wife…

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If you place a charge of $5,000 on your credit card and only make the minimum payment each month, the chart above shows you how long it will take you to finally pay it off and how much interest you’ll end up paying.

- Edwin, CashTheChecks.com

Okay I admit it? I used to be an active ?chatter? in a local chat room on Yahoo. It was a room where many people from the Dallas area met up to?Chat. Many of us had met outside of the cyber room at local restaurants, clubs and the like.

Yahoo had recently shut down a lot of the member created chat rooms in the wake of all the negativity and sponsor lawsuits. Lets face it?The public opinion of chat rooms was not good. I was a virtual unknown person to most chatters because I stayed away from the ?in person? socials but, that all changed one morning. Here is what happened:

A room regular was talking on ?voice? and venting about his house early one morning and I was listening a few steps away making my breakfast. This is what ?Monte? said, ?I got this letter from some attorney who says he is going to sell my house! How does he think he can do that? He doesn?t own MY house so, how can he sell MY house?? My head spun around so fast that I almost gave myself whiplash. I ran to the computer and grabbed the microphone to speak in the room and here is what was said?

Jim: Monte, what is the name of the law firm that sent you that letter?
Monte: Uhmmm, it says ummm.. Barnett, Burke & Associates.
Jim: Would that be BARRETT Burke?
Monte: Yeah, that?s it.
Jim: Monte, email me your number. I need to talk to you NOW.
(That law firm processes nearly 40% of all foreclosures in the state of Texas)

Within a few minutes I was on the phone with him and I told him that I was a local foreclosure expert and taught classes at Foreclosure Listing Service in Addison. I told him I needed to meet with him and his wife right away because, the letter he got was his notice that his house was in foreclosure and he had less than three weeks left before it would go to the auction. He was shocked and claimed he had no idea (I didn?t know how he could be shocked after missing nine payments). Two hours later I was at his house and explained all about the foreclosure process to him and his wife and what options he may have to save his house.

I remember how bad I felt while explaining the situation because his wife just sat there, staring at me with her eyes wide open, not able to say a word. She had no idea the mortgage was past due at all. She had not seen any letters from the lender or taken any call from them. Monte never told her early on and the situation only got worse as the missed payments added up.

After going over all of the possible solutions, I decided that bankruptcy was likely the best option for them and they agreed. I made a call to Hariett Langston, a friend of mine who is a bankruptcy lawyer in Dallas. Monte and his wife were overwhelmed with the situation and asked if I would go with them when they met with the attorney and I told them I would.

We met with Hariett that same week and everything appeared to be set to stop the foreclosure. All Monte needed to do was pay the bankruptcy filing fee.

A week before the foreclosure sale I went to their house and was a bit surprised to learn that he had not paid the filing fee. I asked him when he was going to file and he just shook his head and said he didn?t know. I remember pausing for a few seconds and it dawned on me why he had not filed. I said, ?Monte? You don?t have the money to file, do you?? In a very humble manner, he looked down at the floor and shook his head. ($500 was the amount he needed to get the bankruptcy filed)

As I drove home I thought to myself that it would be simple if I just wrote a check for the $500 but, I thought that he really needed to pay something so important himself. I got an idea about that time and sent an email to one of the chat room regulars who organized the chat room socials. I recall stating in that email that online chat rooms have such a negative public image and went on to tell her about Monte, his situation and I asked her if she could set up a fund raising get together. It would be our way of proving that normal, everyday people go to chat rooms and this was a chance to show at least one chat room could do something good. I told her that he only needed $500 and all it would take is $5 here, $10 there and a $20 from a few? $500 could be raised.

She arranged to have a Dallas chat fundraiser social for that coming Saturday night. I called Monte and told him about the fundraiser. He asked me to not do it (his pride was the obstacle) but, I told him that we were going to do it anyway and it would be nice if he attended. He later told me he was so choked up that he couldn?t say anything but, he did finally say he would attend.

I expected a handful of people to show up for the fundraiser but, I was wrong. Much to my surprise? At least 50 to 60 regulars from that chat room showed up and contributed. At the end of the night, ordinary people from a Yahoo chat room donated more than $700 to help save someone from losing their house.

The next day I gave the proceeds to Monte & his wife and they quickly paid the attorney the fee to file their bankruptcy and their house?No?Their ?home? was saved.

The story got another interesting twist a few days later. I got a call from a reporter who wrote for a well known local media outlet. They had heard about the fundraiser and thought it was a great community effort story that should be told and asked if I wanted them to write about it.

It took only a few seconds for me to process my answer but, I remember thinking that such publicity would be great for business and my classes would see a boost in attendance. Then I thought about the possibility of other homeowners that would read the story and what would my answer be to them if they contacted me and asked me to do a fundraiser for them as well?

I told the reporter that as wild as the story was, I never expected things to unfold as they did. I told them that I had to pass on their offer because, I had done it to help someone and wouldn?t feel right about profiting off of someone else?s stressful and humbling foreclosure experience. They understood and that was the end of it.

I have to admit . . . Of all the positive experiences I have had in real estate, helping Monte might rank as number one. What stands out in my mind was the fact that so many people pitched in to help save a family from losing their home and they did it for someone most had never met or only knew of by screen name?That?s what made it so great.

This happened in 2005 and two days ago I got a phone call from Monte. He just wanted to give me an update and I was happy to hear they still have their home.

During the call I told him about the reporter. He was surprised I hadn?t told him and more surprised that I turned them down. At the end of the call, Monte told me that three years was long enough and he encouraged me to tell the story of how a bunch of chatters from a Yahoo chat room, came together and did something good.

Thanks Monte.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Online Chat Room Helps Save Foreclosure Homeowner

First, a small disclaimer:  I’m not a big movie-watcher myself.  I’ll take in a movie maybe every two months, possibly less often than that.  This includes trips to the theater and rentals.  As such, I don’t spend a lot on movies, anyway.

Over the next few years, taking in a flick with friends and family will be an affordable substitute for a vacation.  It’s just plain cheaper.  The good news for people who really love movies is that it’s possible to get by pretty cheaply, and if you downsize other areas appropriately it won’t strain the budget that much at all.

So, here are some tips for you movie buffs on how to maximize your cinematic dollar:

• Really pick and choose which movies you see in the theater. One group of movies that might make the cut are ones that absolutely depend on special effects and the latest, greatest sound equipment.  Another group would be movies that might take a really long time to get onto video.  The main point is that going to the theater is the most expensive option for watching a movie, so choose wisely.  There’s the time and gas to get out there, as well as the fact that you only get to see it once for your money.
• Take in a matinee if you can. Some theaters offer off-peak showings at a discount to the price of nighttime showings.  The movie is the same.
• Stay away from the concessions if you can. The movie theater makes its money on the concessions.  Fountain drinks have a markup of a few thousand percent.  Same with popcorn.  A movie theater that lets you bring in your own concessions is a hidden gem; if you can, take advantage of that.
• Stay away from giving to causes before the movie. Movie theaters play off attendee’s emotions.  They have a movie screen at their disposal to play carefully-designed clips that encourage you (guilt you?) to give right there.  If you do, the movie theater writes off your donation, not you.  If you itemize, and give what you would have given directly to the charity, you can write it off (assuming you’re allowed to do so).
• Look into packs of tickets to see if there’s a price differential. Costco.com offers movie ticket packs for four different movie theater networks.  Check to see what network your favorite movie theater is in, and check the price of the tickets in the pack compared with your movie theater’s prices.  (Or, you can of course check for movie tickets on eBay!)
• See if you can get a group together. For example, our church got a bunch of people to see Fireproof this year, and I believe that they got a small discount.  Every little bit helps.

• For the movies that really don’t need to be seen immediately or ones where the big screen doesn’t matter, watch it at home! It’s way cheaper.  You can buy your soda and candy at the grocery store, and eat it during the movie without feeling like you have contraband.  Popcorn is way cheaper and healthier.  We use a Nordic Ware microwave popcorn popping bowl and it does a good job without needing any oil.  A bag of kernels costs a couple of bucks and could provide popcorn for a couple dozen people.
• Like to watch a lot of movies and want a lot to choose from? Netflix is probably your best choice.  They have over 100,000 titles to choose from.  They pay for shipping both ways, and you can cancel at any time.  There are instant downloads available each month as well.  My parents-in-law have a Netflix subscription and they absolutely love it.
• Are you looking to start or expand a collection? Well, good news!  Lots of people are looking to get rid of their collection or decrease the size of it.  There’s nothing wrong with pre-viewed DVDs (unless they’re absolutely trashed).  People routinely sell their personal DVD collections on eBay, and bidding on these is brisk.  More often than not they will list every single movie right in the auction, so you’ll know exactly what you’re going to get.  A fair price point for collections is less than half of what you can get them for in WalMart’s dig-through-the-box specials.
• What if you’re like me and don’t watch movies often at all? Like I mentioned above, I watch only a few movies a year.  A Netflix subscription would be overkill for me.  If you’re a casual viewer, then it’s easier to find good deals in low quantities because the urgency really isn’t there.
• Pawn shops, thrift stores, and garage sales are good places to pick up one or two cheap movies. Three bucks is a good price point.  If you run across something that looks interesting, pick it up.
• Redbox works well, too. I had a good experience with Redbox when I rented Expelled.  It was a very easy process, and the rental was a buck for one night for a movie that was released this year.
• Don’t forget free! There are options for free movies, of course.  Your local library might have a collection.  Your church might.  Hulu.com has a fairly decent free movie selection.  You could borrow one from a friend, or wait until it comes out on network television.

As things stand in early 2007, estate and generation skipping (GST) taxes will be repealed in 2010 and reinstated in 2011. And given that Democrats now have control of the House and the Senate, experts are predicting that the permanent repeal of the estate tax is unlikely in the next two years.

At present, for 2007 and 2008, the estate tax exemption is $2 million per person, rising to $3.5 million in 2009, repealed in 2010, and then the tax returns in 2011 with an exemption of $1 million. Given existing laws, experts suggest that using life insurance to pay for potential estate taxes is a very viable solution.

According to industry reports, the number one product sold for estate liquidity today is universal life with a secondary guarantee. In short, this is a policy whereby insurers guarantee the insurance benefit on a universal life insurance policy even if the cash value in the policy goes to zero. This is known as a ?secondary guarantee.? The policy owner agrees to pay a premium which is often less than a whole life insurance premium and if the policy owner keeps-up payments, the policy?s death benefit is guaranteed to age 100.

Policies with secondary guarantees are often used for estate planning where the crucial component is a guarantee of the death benefit and cash value build-up is secondary.

Survivorship life insurance (also called joint and survivor life insurance or second-to-die life insurance) can also be used for estate planning to create the cash liquidity to pay the estate taxes. However, in order for the insurance death benefit to avoid both income and estate tax, the policy must be set-up properly within an Irrevocable Life Insurance Trust (ILIT).

So what in general is universal life, what are its advantages and disadvantages, and when should it be used? According to Tools and Techniques of Life Insurance Planning, universal life ? which was first introduced in the late 1970s — is often referred to as a ?flexible premium,? ?current assumption,? ?adjustable-death-benefit? type of cash value policy. It?s flexible premium because the policy owner can pay whatever premium they wish within a given range and adjust later as needed. Policy owners can even skip premium payments provided there?s enough cash value in the policy to cover policy charges. It?s called a current assumption because current interest rates and current mortality and expense charges are used to determine the cash value of the policy. And it?s called an adjustable death benefit because the policy owner can lower the death benefit at anytime and can raise it with evidence of insurability.

Given this flexibility, universal life is a useful product should a person?s estate tax liability rise or fall with the Congressional tides. Typically, a universal life is best suited for long-term coverage needs; while a non-renewable term policy will generally be more cost-effective for short-term needs. Generally, however, such policies work best when flexibility is needed and policy owners need to reconfigure their premiums or death benefits.

According to some planners, the biggest advantage of using guaranteed universal life is this: The policy owner pays the least expensive premiums to guarantee a lifetime death benefit. The policy owner can also adjust the premium. If, for instance, there?s enough cash value to cover the mortality charges, the policy owner could even skip premium payments.

However, caution should be followed in skipping or delaying payments on these contracts since the ?guarantees? could be impacted. Even premiums received during the grace period could affect the accumulated values and ?guarantees.? Policies differ on this and need to be reviewed before any change is to be made.

The policy is also transparent ? the policy illustrations and annual reports break out and report each element of the policy, such as premium, death benefit, interest credits, mortality charges, expenses and cash value, separately.

Universal life policies also offer two death benefit options, one that is similar to a traditional whole life policy and one that is like a traditional whole life policy with a term rider. The first, a level death benefit; the latter, an increasing death benefit.

When selecting a universal life policy, it?s especially important to consider the amount credited to cash values. The prospective policy owner should know how the insurer determines the amount credited to cash values. The amount credited to cash values depends on the expenses charged against the policy, the mortality charges assessed against the policy, net investment yield earned by the insurer on its portfolio investments and the method used to allocate interest to various blocks of policies.

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With the whole mortgage meltdown and ensuing credit crisis, there is plenty of blame to go around. Even with shady lenders, complex loans, and loose lending requirements, most of this could have been avoided if people took the time to read, and more importantly, understand what they were signing. Most people simply don’t want to spend the time to sit there and read all of the fine print and those who do actually read it may not fully understand everything.

Don’t Be Embarrassed if You Don’t Understand

When someone explains something technical or difficult to grasp and then asks, “Do you understand?”, the response is typically “yes.” Either it is because you want to get through the process quickly, you don’t think it is very important, or you don’t want to feel embarrassed that you don’t understand a concept. This could end up being a costly mistake. If you don’t understand something or if you see conflicting information, it is in your best interest to stop and ask questions. It’s much easier to take a moment before signing to get clarification than to learn the hard way at some point in the future.

Information Included in the Fine Print

Most people are concerned with a few key areas of a loan such interest rate and length of the loan, but it is within the fine print of the promissory note or security agreement that contains the information that can really cost you money. The most common information included throughout the text will include:

• The promise you make to pay the lender a certain amount of money plus the agreed to interest rate.
• Whether the interest rate is fixed or variable — if variable, when does the rate change and by how much.
• The payment schedule.
• Charges for late payments.
• Any applicable grace period.
• If the loan can be paid off early and if any penalties are incurred for doing so.
• Whether or not security or collateral is required.
• Whether or not the loan can be extended.
• What happens if you default.
• What happens if you pay with a bad check.
• Can the lender take money from other accounts you may have with them to repay the loan.
• Who pays legal fees and collection costs.

Don’t Sign Anything Until You Completely Understand

While it pays to make sure you get a good interest rate with good terms, it is equally important to make sure you understand everything about the loan even if you don’t think it will ever apply to you. You have nobody to blame but yourself if you make a late payment and find out there is a $40 late fee. It would come as no surprise if you took the time to understand what you agreed to. In the event of a problem with your account, ignorance is not a defense. It may seem like a waste of time to spend an extra ten or fifteen minutes to read multiple pages of small text, but it could end up saving you money or problems somewhere down the line.

And finally, don’t feel pressured by the person sitting across the table who’s urging you to sign. Not everyone is out there trying to trick you into a shady loan, but you shouldn’t feel rushed if they are just trying to quickly get you through the process. They can wait, and you should take as much time as you need. If they brush off certain sections saying it isn’t important, just explain that you want to take a moment to look it over. A couple extra minutes will ensure that you aren’t missing some key terms on the loan and help you completely understand what to expect, and what the consequences will be if something goes wrong.

Read the Fine Print Before Signing Any Loan - You Might be Surprised at What’s in There

Check out this letter to the editor that was in today’s Wall Street Journal:

In your Dec. 1 editorial “Messing With Malpractice Reform,” you urge the Illinois Supreme Court to “side with the patients and the rule of law” in considering a case that could overturn the state’s cap on damage awards. Yet the editorial never mentions the patient who is at the center of that case.

She is a three-year-old little girl named Abigaile LeBron, whose life has been forever changed by the severe brain damage she suffered as a result of medical negligence. It is likely that Abigaile will have to be fed through a tube for the rest of her life. She will never develop cognitively or physically as her peers do. And she will likely never live independently. It is inarguably a very painful tragedy for Abigaile and all who know and love her.

The insurance industry and its brethren in the tort reform world have argued that Abigaile’s compensation for lifelong disability, pain and suffering should be arbitrarily limited, despite what a jury of average citizens may decide. The question before the Illinois Supreme Court is whether the Illinois Constitution allows Abigaile’s rights to be limited in this fashion to the benefit of insurance company profits. Twice before, our state’s highest court has decided in favor of patients and against the insurance companies that would limit these rights to protect their own profits. No new arguments have been offered by the insurance industry.

You argue that a reduction in malpractice premiums and the return of doctors to the state have resulted from the law containing caps. Nothing could be further from the truth. Not one case has been litigated under the new cap in Illinois. The simple fact is that those positive developments have resulted from strong, long-suppressed insurance reforms in the legislation. That law has now forced malpractice insurance companies to provide greater transparency on rate-setting and payouts that has in turn spurred competition, motivated more companies to enter the marketplace, and lowered premiums for doctors. Important to the discussion for your readers is the additional fact that Illinois’ largest malpractice insurer has reported that payouts have remained flat for the past 13 years. By the way, it’s the same insurance carrier that admitted during the run-up to this legislation in 2005 that capping awards would not guarantee lower premiums for its doctors.

The Illinois Constitution was put in place to ensure individual rights and freedoms. While corporations and profit-hungry executives often stack the decks against individuals in the marketplace and the halls of government, the courtroom can still provide all parties with a level playing field. The Illinois Supreme Court will now decide whether that standard remains in place for patients like Abigaile LeBron. You should let it do its job.

Philip Harnett Corboy Jr.
President
Illinois Trial Lawyers Association
Chicago

Here’s the problem I have with juries being able to award money damages:

They have no concept of how much money they are awarding. It’s not their money so why not be a cheerful giver?

I’m not saying that what happened to the little girl in the editorial isn’t a tragedy. It is.

I just think it would be nice for lawyers to stop hiding behind the sad stories, be honest and say, “I don’t like tort reform because it severely limits how much money I can make!” It’s silly to talk about “greedy” insurance companies when the lawyer gets a nice percentage of the winnings.

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The gaffe of the week goes to John McCain, when in an interview with Politico.com he was unable to remember how many houses he has.

Folks of all political stripes who read this blog will probably be willing to give Senator McCain a little slack on this one. We’re real estate investors and we buy and sell properties. We might not have married a $100 million heiress like Senator McCain (or made $4 million off a lucrative book deal like Senator Obama, for that matter) but we can understand how LLC’s and partnership purchases might turn a seemingly simple question into one that can be a little more tricky.

So my concern is not that Senator McCain was unable to rattle off the right answer. My concern was his startled, confused reaction. His rambling, mumbling response: "I think -- I'll have my staff get to you -- um -- its condominiums where -- I'll have them get to you.” In today’s complex world the ability to think on your feet and stay on message is an important prerequisite to being the President of the United States of America. The fact that Senator McCain was so visibly unhinged by this question will worry some voters.

I don’t’ think that the average American begrudges Senator McCain family their $100 million fortune; Americans don’t resent wealth – we aspire to it. But folks who are struggling to make ends meet want to feel that the President understands their challenges, and those who have invested in the ownership society want a leader who will get the economy back on the rails. When Senator McCain facetiously quipped last week that $5 million per year is the cutoff for being wealthy, a lot of folks felt left out of the joke.

I feel that we facing an immediate future of complex economic challenges – one in which prudent real estate investors will be comparatively well positioned. But in the end the returns that we realize will be linked closely to the fortunes of our fragile economy, which in turn will be heavily impacted by gas prices and – ultimately - oil.

Oil is an international fungible commodity, and therefore oil prices – the single more important driver in our economy – will be largely outside of our control. The biggest factor in what will happen with oil prices lies in direction of international stability, or lack thereof. Neither party talks much about this particular elephant in the room – the reason being that both parties realize, rightly, that there isn’t much that we can do about it. Our recent adventure to send our Armed Forces to the Middle East to spread freedom and democracy isn’t entirely to blame, but it has been an exacerbating factor that has undoubtably made things worse and weakened our influence, both politically and militarily.

In the future there will be a link between what we do overseas and our economic fate here at home – and it’s a new relationship that will be strikingly different from what we’ve seen in the past. As retired Army Colonel and Niebuhr scholar Andrew Bacevich writes in his excellent book The Limits of Power, our economy can no longer be sustained by expansion abroad enforced by our military. As a former military officer myself this is a new way of thinking. I now tend to put less of a premium on “experience” as traditionally defined; I want a leader who can see the new patterns as the world continuously rewrites the rules.

So while I can forgive Senator McCain the fact that he doesn’t know how many houses he has, I am more concerned about the prospect that having spent decades as a fabulously wealthy United States Senator has dulled his ability to identify the shifting currents of the new world economy.

Those who run real estate investment clubs have a big challenge in lining up speakers for each meeting.  Clubs do not usually have the kind of budget that would allow them to pay for speakers, therefore they need to do their best to locate those that will speak for free.  This invariably results in the talk being given by someone who has a specific agenda or something to sell.  This is not necessarily a bad thing, you just need to keep the speakers ultimate motivation in mind when you listen to the spiel.

Some of these speakers are quite good and their knowledge is obvious.  On the other hand, some of the speakers leave you scratching your head and wondering if they have ever owned an investment property.  Investing veterans have little difficulty in separating the fakes from those who are the real deal.  Novice investors may mistakenly assume that if someone is speaking to a group he must know something.  Hopefully they will learn before they are burned by one of these phonies. 

 My primary purpose for attending monthly club meetings is for the networking and resulting connections ( see: Getting the Most From Your Real Estate Club ), however I do enjoy hearing from good presenters. My local real estate club had two very well qualified speakers at a couple of recent meetings.  While both were very obviously qualified to speak about real estate investing, their styles and agendas were a world apart.  

 Guru #1

At our May 2008 club meeting we had a speaker who specialized in foreclosures.  Certainly a timely topic and on that I was looking to learn more about.  I had seen this speaker once before and knew that he was a good presenter and very knowledgeable.  After introducing himself and providing his background, he openly stated his agenda.  He was not there to sell books, tapes or home-study courses, in fact he didn’t have any of that.  The business model for his company was to purchase bank REO (foreclosures) properties in bulk.  He then sold these properties as-is or after light rehab to investors at wholesale prices.  To do that he needed two things, properties to buy from banks and investors to sell them to.

What he was pitching was a two day seminar on how to locate, buy and finance the acquisition of these properties.  He was charging $1800 for the seminar with the guarantee that he would refund your money after the first day if you didn’t feel it was worth it.  He then proceeded to spend the next hour sharing some of his knowledge of the subject.  He was truly impressive and it was a great example of what you would get in his workshop.  He had over twenty people sign up and most of them were veteran investors who are not easily impressed.

 Guru #2

At our most recent club meeting we had another speaker with impressive credentials.  He is currently featured on one the house flipping shows and has a real estate company on the east coast.  The club heavily promoted the meeting because they do not usually have a name speaker and the resulting attendance was much larger than normal.  Many of the regular meeting segments were cut short to allow this speaker to have as much time as possible.

This speaker had an array of tapes and course material displayed, so his agenda was obvious to anyone who was paying attention.  He began his talk with his background in real estate and talked about all of the mistakes he made when he began.  He kept telling us that he was going to teach us how to do this, that, and the other thing during his talk.  I kept waiting for him to actually “teach” something but all he really did was talk about what he was going to tell us.

As the talk progressed it was laced with sales pitches for a computer program, home-study courses and his five-day boot camp.  Some of the pitches were very subtle while others were blatant commercials.  After 90 minutes he closed with a final pitch for his boot camp.  The regular price was $5,000, but is you signed up now it was only $2,497.  But wait, there’s more! He would include a $500 credit for your travel expenses and the first few people to sign up would receive the $2,000 computer program for $1!

A handful of people did sign up.  From what I saw they were newcomers to the club or novice investors.  None of the veterans were impressed enough to part with their cash. 

The Bottom Line

Both of the gurus were qualified to speak about real estate.  However their value was very different.  One was geared to marketing courses and boot camps to novice investors.  Those who sign up would most likely gain valuable knowledge, but would it really be worth the price?  The second guru was targeting experienced investors with a desire to participate in the foreclosure market.  I spoke to several of the attendees who agreed that there was definite value, but it was not for everyone.

If you are ever inclined to sign up for some gurus course, do so with your eyes wide open.  Is the course geared to someone with your level of experience?  What do you hope to gain from the seminar or boot camp?  Will you be able to implement what you learn or are you just falling for a sales pitch from a smooth-talking speaker? Buyer beware.

The great difficulty in education is to get experience out of ideas.
George Santayana

This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

A Tale of Two Real Estate Gurus