Alternative Investments | The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

Mortgage Investors Join Outcry Against Banks

Posted on October 19, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Coordinated Strategies Emerging

[By Karen Weise ProPublica: Oct. 18, 2010, 1:18 p.m.]

Homeowners, and at times the government, have long complained that banks and other companies that service mortgages aren’t good at their job of collecting monthly payments, modifying loans and processing foreclosures. Now, a new cast of characters are piling on the criticism: the servicer’s own clients, the investors that actually own the mortgages.

The Servicers

Servicers handle the day-to-day of working with homeowners on behalf of the investors, who bought bundled mortgages from Wall Street. But investors are now threatening servicers with legal action. Just like homeowners, investors are frustrated by the poor job in modifying loans that servicers have been doing. They also say servicers are looking out for themselves, not investors’ interests as their contracts typically require.

For example, Investor Bill Frey, who runs the securities firm Greenwich Financial Services, says servicers view investors as “a Thanksgiving turkey to be carved up and shared among them-selves.” Investors can range from foreign governments and hedge funds to college endowments and pension funds. During the housing bubble, they gobbled up AAA-rated bonds created by pools of mortgages. Now that defaults and foreclosure are mounting, investors argue that flaws in how loans are serviced are costing them billions of dollars.

They say servicers have often dragged out foreclosures to rack up fees and refused to reduce second mortgages to make modifications sustainable. Investors often prefer modifications to foreclosures. But for modifications that won’t ultimately prevent a homeowner from defaulting, investors still prefer quick foreclosures so they can recoup their money and move on.

Of Terminal In-Decision

“Terminal indecision is not good,” says Frey. “If it can be fixed, fix it. If it can’t, nix it.”

Servicers have been slow [1] to modify mortgages—something we’ve written [1] about many times [2] — and when they do modify loans, homeowners are still saddled with other debt from second mortgages and home equity lines. Even after modifications under the government’s program, homeowners typically still must spend almost two-thirds of their income to pay off their mortgage and other loans, like credit cards or second mortgages.

Emerging Paperwork Scandal

The current mortgage paperwork scandal [3] adds more fuel [4] to the fire as major servicers have halted foreclosures because of potential paperwork irregularities around the country. Concerns are also growing that banks may not have properly transferred loans into the mortgage pools in the first place. “This deficient approach undermines the integrity and the operational framework of the housing finance and mortgage system as it exists today,” the Association of Mortgage Investors wrote [5] in a press release.

(For more on the growing scandal, check out our recent explanation of the main players involved.)

The Mortgage Bankers Association, which represents most major servicers, did not respond to ProPublica’s request for comment.

Legal Strategies

Investors from across the country have been coordinating legal strategies for over a year ago, with the effort ramping up in early spring, according to Frey. Since then, more and more investors have formed a loose consortium, gaining momentum “like a snowball going downhill,” he says. In the last month alone, the group added other investors that own an additional $100 billion in mortgage bonds.

They have not filed any suits yet, Frey says, because the group is first trying to grow even more. Also, since each investor group has different, nonmortgage business with the banks, some investors have conflicting interests in how to proceed, he says. The consortium now represents investors that own more than $600 billion in mortgage securities, which is around a third of the entire mortgage securitization market. The group includes 65 major mortgage investors; Bloomberg reported that large investment companies including Black Rock, PIMCO and Fortress are part of the effort, as are the quasi-governmental Fannie Mae and the Federal Home Loan Banks, which both own private securitized loans.

Coordinating investors is no easy task, since the mortgage bonds were sliced and diced to be sold off to investors around the world. To assert legal rights, investors must coordinate to prove that they collectively represent a certain percentage of each mortgage pool, or in some cases, a certain percentage of each slice of each mortgage pool. (The Wall Street Journal [6] and Bloomberg [7] both describe how Texas-based attorney Talcott Franklin is coordinating a clearinghouse to keep track of the various investments.)

Once investors have standing in each pool, they have the legal right to pressure servicers and trustees to improve or face litigation. The group says they have the legal authority to act in over 2,300 deals.

Investors say servicers must reduce or cancel second mortgages entirely before adjusting the primary loan, since that follows the legal pecking order of how loans should be paid off. But investors say servicers have are dragging their feet in reducing second mortgages to protect their own books, since the largest servicers — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — also own almost 60 percent of the $1 trillion second lien market.

Congressional Oversight Panel

A Congressional Oversight Panel concluded in April that there is “tension” between Treasury’s goal of supporting reductions to second mortgages and Treasury’s interest in ensuring that writing down second liens doesn’t severely weaken banks’ balance sheets. The panel wrote than when a servicer owns the second lien, the “inexorable conflict of interest” will more likely lead to modifications on the first loan, “as it benefits the bank at the expense of the mortgage-backed security investors.”

We’ve previously reported [8] that mortgages servicers frequently tell homeowners that investors are the roadblock to loan modifications, even though few mortgage deals actually restrict modifications.

Servicers are also supposed to act like watchdogs and report back to investors when they identify loans they suspect didn’t meet the lending standards promised when the bonds were initially sold to investors. If the banks did misrepresent the quality of the loans initially, the banks would have to buy back the invalid mortgages from the investors. But in many cases, the servicers are subsidiaries of the banks that sold the bonds, which investors say helps explain why servicers have been dragging their feet. Bloomberg noted [7] an analyst’s report that said mortgage repurchases could total over $179 billion.

Original Link: http://www.propublica.org/article/investors-join-outcry-against-mortgage-servicers

Assessment

According to an investor letter cited [6] in the Wall Street Journal, in some mortgage pools that have high default rates, the banks have not repurchased any loans when the servicers are subsidiaries of the banks that sold the bonds. Investors say this is all no small matter. Since the country’s mortgage market is heavily dependent on government support right now, they insist servicers make good on their contracts before start buying loans and supporting the mortgage market again.

Related Articles:

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE:Financial Planning for Physicians and Advisors
INSURANCE:Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Alternative Investments, Financial Planning, Industry Indignation Index, Investing | Tagged: Association of Mortgage Investors, Bank of America, Bill Frey, Black Rock, CitiGroup, Fannie Mae, Federal Home Loan Banks, Fortress, Greenwich Financial Services, JPMorgan Chase, Karen Weise, Mortgage Bankers Association, mortgage foreclosures, Mortgage Investors Join Outcry Against Banks, mortgage paperwork scandal, mortgage servicers, PIMCO, ProPublica, Talcott Franklin, Wells Fargo | 24 Comments »

Texas Mortgage Firm Survives and Thrives Despite Repeat Sanctions

Posted on July 18, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

The Allied Home Mortgage Capital Caper

By Charles Ornstein and Tracy Weber, ProPublica July 2, 12:24 a.m.

As his competitors imploded one by one, Jim Hodge, the folksy founder of Allied Home Mortgage Capital [1], touted his sprawling Houston firm as a survivor.

Not only was Allied still standing, Hodge told employees in a company newsletter in December, it was thriving. “The good news,” Hodge wrote, “is that even though we are all having to work harder, most branches are making lots of money.”

But an examination of Hodge’s mortgage company by ProPublica found that its prosperity has come at a price for dozens of customers who claim Allied brokers have put their homes at risk, lied to them or improperly siphoned money from their deals.

The firm has left behind a trail of alleged misconduct and piecemeal government sanctions spanning at least 18 states [2] and seven years. Yet Allied chugs along unimpeded, aided by access to the government-backed Federal Housing Administration [3] loan program.

Over the past year, the FBI and federal prosecutors have made mortgage fraud a priority, filing criminal charges across the country. Regulators, such as the U.S. Department of Housing and Urban Development [4], also say they are getting tough. But Allied’s [5] history shows how even repeat offenders can fall through gaps in the fragmented safety net meant to protect mortgage borrowers.

Now Consider

Allied has the highest serious delinquency rate [2] among the top 20 FHA loan originators from June 2008 through May.
Nine states have sanctioned the firm in the last 18 months for such violations as using unlicensed brokers and misleading a borrower.
Federal agencies have cited or settled with Allied or an affiliate at least six times since 2003 for overcharging clients, underpaying workers or other offenses.
At least five lenders have sued, claiming Allied tricked them into funding loans for unqualified buyers by falsifying documents and submitting grossly inflated appraisals, among other allegations.

“Everything is just a nightmare for me,” said Cheryl Stewart, who is suing Allied alleging that its Hammond, La., office misrepresented her income to qualify her for a loan, then deposited money from her closing into the branch manager’s bank account. Stewart said she is on the brink of losing her home as a result. Allied has successfully argued that the case should be moved out of state court and into arbitration.

Despite these repeated complaints, no single agency is investigating the sweep of the company’s actions and whether they represent a pattern or, as Hodge maintains, are to be expected for a company of Allied’s size. It bills itself as the nation’s biggest privately held mortgage broker-banker with some 200 branches.

William Black, an associate professor of economics and law at the University of Missouri-Kansas City, said Allied’s record exemplifies the failings of a regulatory system that has teeth but seldom bites.

“It’s a wonderful example of the overall crisis,” said Black, who has testified before Congress about financial fraud. “What would it take before somebody would take serious action?”

Federal housing officials would not discuss Allied’s performance or their own negative audits of the firm. But after a recent review, the FHA has recommended that the Mortgagee Review Board take action against Allied. The board can fine companies or revoke their access to the FHA market, which has caused firms to close.

Secret Service Investigations

Separately, the Secret Service, which conducts criminal investigations for the Treasury Department and Federal Deposit Insurance Corp., confirmed that it is looking into allegations of fraud and wrongdoing at Allied’s now-shuttered branch in Hammond.

Although Allied is dwarfed by Wells Fargo, Bank of America, Quicken Loans and JPMorgan Chase, the nation’s largest mortgage firms, it remains a big player in FHA-insured loans.

In the last two years, Allied Home Mortgage Capital originated more FHA mortgages than all but 15 of the more than 10,000 firms that handled such loans. Since 2005, it has processed nearly 40,000 FHA loans worth nearly $5.85 billion, according to the FHA. Those loans now account for at least 70% of Allied’s business, Hodge said.

Allied differs from most other FHA players in that it is both a broker and a lender. It has an affiliated company with a nearly identical name that has been the lender on about 30% of its FHA loans in the last two years.

Since the collapse of the subprime market, the volume of FHA-insured loans has boomed, rising from about 5% of all home loans in 2007 to 20% in 2009. When these loans fail, an insurance fund supported by FHA borrowers picks up the tab.

Both as a broker and a lender, Allied’s rate of seriously delinquent loans is nearly 60% higher than the national average for the past two years. And the FHA paid out more than $500 million from 2005 to 2009 for claims on defaulted loans brokered by Allied, statistics show.

In an interview, Hodge said the delinquency rates reflect more on the lenders that funded the loans than on his brokers.

The $500 million in claims FHA paid out, he said, were covered in part by insurance premiums paid by Allied borrowers — who largely do not default. “They didn’t have a complete loss of a half a billion,” he said.

Hodge said the problems experienced at some of Allied’s branches should not tarnish his firm’s overall record. “If you look at the volume that we did or do,” he said, “it’s not significant.”

Broken Trust

Sal and Ashley DePaula said they had more reason than most people to trust their broker: The manager of Allied’s Hammond branch was a tenant in one of their rental houses.

Over the course of 2006 and 2007, Allied’s staff helped them sell that property to an acquaintance of the manager and refinance several others.

It wasn’t until months later, the DePaulas allege, that they realized they’d become pawns in a scam.

The buyer of the property the couple sold for $93,000, had actually paid $47,000 more than that, according to a lawsuit in state court by the couple and documents they provided. The cash ended up in the account of Shane Smith, the branch manager, a wire-transfer record shows.

Then, after a tornado hit one of the DePaulas’ refinanced rental homes in 2008, they learned they’d never been signed up for the insurance Allied said it had arranged — even though they’d paid for it every month. The couple said they expect to spend more than $36,000 on repairs.

“Had somebody robbed me and stole $50 out of my purse, they would be in jail,” said Ashley DePaula, who said she is “bitter” that no one has been punished.

Last year, the couple learned that Allied had put another borrower’s name on Sal DePaula’s retirement account statement and submitted it in a loan qualification packet.

That other borrower, Louisiana state criminal investigator Terry Apple, said he only realized he was part of an alleged scam when ProPublica showed him a copy of the statement.

“I’m now finding out that I’m just a small part of a very large puzzle,” Apple said.

At least four lawsuits, including one by the DePaulas, have been filed against Allied over the conduct of its Hammond branch. Other borrowers, some of whom are mentioned in legal filings, allege they, too, were defrauded but can’t afford to sue.

“You know how your body can be quivering?” said Franklin Morgan, 62, a disabled Vietnam veteran who faces losing his home. “That’s what my body’s been doing every day.”

In towering stacks of legal documents, attorneys allege that the Hammond office deceived their clients from 2005 through 2007 by misrepresenting loan terms, falsifying records, failing to pay off prior mortgages and diverting hundreds of thousands of dollars. A title lawyer who worked closely with the Allied branch also stands accused — and has been sued by Allied.

The alleged victims include friends and relatives of Allied staff and the birth mother of the assistant manager’s adopted daughter. That assistant manager’s past — including an arrest warrant for allegedly stealing $24,000 from a previous employer — has come to light.

The lawsuits are proceeding, but Ashley DePaula says Allied has offered a small settlement that has not been finalized.

In an interview, Hodge conceded that “serious fraud” had taken place at the branch, which closed in 2008. He also acknowledged personally hiring branch manager Smith even though Smith previously had lost a home to foreclosure and declared personal bankruptcy. Smith and his attorney could not be reached for comment.

Hodge said the Allied corporate office does not appear to be a target of any criminal probe.

“I don’t know all the details,” he said. “It’s a pretty bizarre situation.”

Customers’ Stories

Around the country, other Allied borrowers tell similar tales.

Pete Pauley, pictured with his wife Mary Ellen, sued Allied in W. Va. state court alleging that a broker misled him about a low-interest loan in 2004.

In Charleston, W.Va., businessman Pete Pauley sued Allied in state court alleging that a Weirton, W.Va., broker misled him into signing for a low-interest loan in 2004 whose rate began rapidly rising after one month.

As part of the loan approval process, the branch submitted a letter from a local accountant verifying Pauley’s ownership of his company. That accountant later testified he didn’t know Pauley or write the letter.

Pauley, who runs an oil and gas company, said the experience was humiliating. He and his wife, Mary Ellen, a nurse, learned of other complaints.

Four other couples alleged similar betrayals by another Weirton loan officer, the sister of Pauley’s broker.

Allied settled for $240,000, Pauley said. But Hodge said Allied did so only after the judge strongly encouraged it.

“We ended up buying that guy a house,” he said.

Allied also settled with the other four couples. In addition, it agreed to pay $12,000 in education and restitution costs after the West Virginia attorney general found it had misled borrowers about their loans.

Lenders, too, have felt aggrieved. AmericaHomeKey sold loans brokered by Allied to a secondary investor. After four borrowers failed to make even the first payments on their loans, the investor demanded the lender make good.

AmericaHomeKey then sued Allied in Harris County, Texas, alleging that it had misrepresented the self-employment status of three of the borrowers and failed to check out other basic facts.

“Clearly, these borrowers lacked the financial means and/or the intent to make the payments on these mortgage loans,” the lawsuit said.

Allied disputes the allegations and will defend itself “with vigor,” Hodge said.

In South Carolina, Charleston title attorney Elizabeth Stuckey Murphy testified in a deposition that she became so concerned about possible fraud at Allied’s Goose Creek branch that she complained to the FHA and law enforcement agencies in 2005.

The branch manager, Murphy claimed in a letter to authorities, had padded closing statements with invoices for contracting work by her husband that was never performed — nearly $30,000 in one case alone.

In a deposition two years later, Murphy was asked about her complaint to the FHA hotline. “To date,” she said, “I haven’t received any response.”

Frequent Troubles

Every year since 2003, Allied has landed in trouble somewhere.

It’s a streak that began with twin wallops from the U.S. Department of Housing and Urban Development totaling $420,000 in settlements — a significant sum for the agency. HUD oversees the FHA program, which insures mortgages for buyers who can’t afford big down payments.

In all, regulators and attorneys general in at least 18 states have acted against the firm or its brokers. Most of the matters have been settled without any admission of wrongdoing by Allied.

Washington state banned a former broker in Allied’s Spokane office after he was convicted of 10 felonies for stealing Allied clients’ money and laundering it. Arizona denied a broker’s license to a firm owned by Allied’s Tucson branch manager because she had previously been convicted of embezzling from a bank.

State regulators say they must limit their actions to what happens within their borders. Federal officials say they don’t generally look into state actions unless a mortgage company’s conduct may also violate federal rules.

Assessment

Although HUD and FHA have recently stepped up oversight of the mortgage industry, they have long had tools to police it. Using data collected on every loan, housing officials can statistically track whether mortgage firms are putting borrowers into FHA loans they can’t or don’t pay on. According to this data, Allied for several years has had a serious delinquency rate well above the national average. And, over the last two years at one Houston branch, some borrowers mustered only a few payments or none at all. The serious delinquency rate within one year of closing was 12%, compared with 4.2% nationwide.

Gary Lacefield, a former HUD investigator, said the numbers are an obvious red flag about Allied that regulators should have acted upon. “I see no reason,” he said, “why they shouldn’t have been hammered.”

Note: ProPublica director of research Lisa Schwartz contributed to this story. USA TODAY editors assisted in preparing it for publication.

http://www.propublica.org/article/texas-allied-home-mortgage-capital-thrives-despite-sanctions

Any ME-P medical professionals, readers, clients or FAs affected by this caper?

Channel Surfing the ME-P

Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register. It is fast, free and secure.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

Filed under: Alternative Investments, Financial Planning, Industry Indignation Index, Research & Development | Tagged: Allied Home Mortgage Capital, Bank of America, Chase, Cheryl Stewart, Federal Housing Administration, FHA, home mortgages, HUD, JPMorgan, mortgage defaults, Quicken Loans, Terry Apple, U.S. Department of Housing and Urban Development, Wells Fargo, William Black | 2 Comments »

Identifying Suspicious Short Selling

Posted on July 11, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

But Not Who’s Behind the Trades

By Karen Weise
ProPublica, July 8, 2010

Last weekend, The Wall Street Journal highlighted new academic research [1] showing that investors may be trading on insider information after companies approach hedge funds for loans.

Researchers found that on average, in the five days before companies announce a loan from a hedge fund, the volume of short sales increases by 75 percent as compared with the 60 days before a deal is announced. There was no comparable uptick in betting against companies that borrowed money from commercial banks instead.

Short Selling

With short selling, hedge funds and other investors make money by wagering that a stock’s price will fall. Borrowing from hedge funds rather than commercial banks can be seen as a sign of distress, as hedge funds tend to charge higher interest rates.

One of the researchers, Debarshi Nandy of the Schulich School of Business at York University in Toronto, told ProPublica that the findings pose an important question of whether hedge funds are using insider information inappropriately.

Working Draft

Here’s a PDF of a working draft of the paper [2]; the final version is not yet published. When companies ask hedge funds to consider giving them a loan, they typically require that the funds sign nondisclosure agreements. That’s because the borrowers divulge confidential financial information in the process of trying to get a loan — information that can provide insight into a company’s future performance. That, in turn, can be valuable to investors.

Examining Changes

In looking at instances when companies made changes to existing loans, researchers found that the short sales on companies amending loans from hedge funds were profitable, whereas similar short sales on companies amending loans from banks resulted in losses. But, the researchers stop short of saying that hedge funds definitely make insider trades. It’s all a little bit hazy because there is little disclosure required for hedge funds and short selling. While the paper identifies “abnormal” shorting activity, the identity of the investors making the trades is a mystery. “If it is truly insider trading by the fund or a ‘tip-ee’ of the fund, it would really be good to get some further data on who is actually doing the trading,” said Anita Krug, an expert in the laws governing hedge funds.

Assessment

Investors are required to notify the Securities and Exchange Commission when taking large long positions, but there is no equivalent requirement for short bets. During the week that Lehman Brothers collapsed in the fall of 2008, the SEC issued a temporary order [3] requiring investors to report large short positions, but it did not renew that requirement last summer when the order lapsed [4]. The pending financial reform bill also would not require disclosure.

Conclusion

Short sellers say more regulations would discourage their trading, which they argue helps moderate market bubbles and contributes to market efficiency, says Mark Perlow, an attorney at K&L Gates who represents hedge funds.

Link: http://www.propublica.org/article/identifying-suspicious-short-selling-but-not-whos-behind-the-trades

And so, feel free to comment and review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

https://www.crcpress.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

Filed under: Alternative Investments, Breaking News, Financial Planning, Investing, Research & Development | Tagged: Debarshi Nandy, hedge funds, Karen Weise, Mark Perlow, ProPublica, SEC, Securities and Exchange Commission, Short Selling | 1 Comment »

Treasury Officials and Investment Firms Cozy Up for Business

Posted on April 19, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

The State of Oregon

By Marian Wang, ProPublica – April 12, 2010 4:13 pm EDT

Over the weekend, several stories about troubled state and local pension funds were published. In Seattle, officials are chasing down information about $20 million the city invested in a now-insolvent hedge fund [1]. And, in California, cities’ investments have not paid off as expected [2], forcing some local governments to cut other programs to pay for pensions. Across the country, the downturn has put a strain on many states’ fiscal health, and has caused extreme losses in higher-risk investments like pension funds. But, not so in Oregon, where investments are doing well, and state investment officers are doing even better.

[picapp align=”none” wrap=”false” link=”term=hedge+fund&iid=6715184″ src=”2/0/7/9/Swiss_Village_Becomes_85fc.jpg?adImageId=12469045&imageId=6715184″ width=”380″ height=”262″ /]

Why Oregon?

The Oregonian reports that state investment officers are being wined and dined by the private investment firms [3] whose services to the state they oversee. State Treasury officers, paid on average “just shy of $200,000 last year,” were treated to resort hotels, first-class airfare and high-end dinners—“all in the name of public service.”

The cozy relationship, reports the Oregonian, raises questions about whether the first-class treatment skews officers’ ability to oversee the investment firms that treat them so lavishly. For their part, the firms stand to gain quite a bit if they stay in the good graces of state Treasury officers:

Public investors such as Oregon are lucrative customers. Besides the cash to invest, investment firms collect huge fees for their day-to-day work. Oregon’s pension system alone paid $335 million in investment fees and expenses last year … The concept is much like an individual investor figuring out how to put spare cash to work in profitable ways. Except Oregon has billions in cash. Profits from investments cover state retiree pensions and care for Oregon’s injured and disabled workers.

Assessment

Oregon Treasurer Ted Wheeler announced last week that he was reviewing travel protocols, though Oregon Treaury’s chief investment officer Ron Schmitz has said high-end travel is “necessary normal business practice.” “We consider none of it luxurious,” he told the newspaper. But that’s not what it sounds like from communications between investment officers and the investment firms.

“I’m only packing my swimsuit, Tevas, and sun tan lotion and you guys will just have to find me on the beach or surfing the waves,” one Treasury employee wrote to a firm representative. The firm ended up paying for his stay in a Four Seasons Resort in Mexico.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Sponsors Welcomed

And, credible sponsors and like-minded advertisers are always welcomed.

Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise

Filed under: Alternative Investments, Breaking News, Investing | Tagged: hedge funds, Marian Wang, Oregon State Treasury, Oregon’s pension system, Ron Schmitz, Ted Wheeler | 1 Comment »

How One Hedge Fund Helped Keep the Bubble Going

Posted on April 16, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

On the Magnetar Trade

By Jesse Eisinger and Jake Bernstein, ProPublica – April 9, 2010 1:00 pm EDT

In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

Precise Timing

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund [1] helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

Get ProPublica’s Top Stories and Major Investigations Delivered to Your Inbox

When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

The Magnetar Trade

How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade [2]. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails [3], thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street.

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations — CDOs. If housing prices kept rising, this would provide a solid return for many years. But that’s not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.

Chance Enhancement

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs.

Magnetar says it was “market neutral,” meaning it would make money whether housing rose or fell. (Read their full statement. [4]) Dozens of Wall Street professionals, including many who had direct dealings with Magnetar, are skeptical of that assertion. They understood the Magnetar Trade as a bet against the subprime mortgage securities market. Why else, they ask, would a hedge fund sponsor tens of billions of dollars of new CDOs at a time of rising uncertainty about housing?

Key details of the Magnetar Trade remain shrouded in secrecy and the fund declined to respond to most of our questions. Magnetar invested in 30 CDOs from the spring of 2006 to the summer of 2007, though it declined to name them. ProPublica has identified 26 [5].

Independent Analysis

An independent analysis [6] commissioned by ProPublica shows that these deals defaulted faster and at a higher rate compared to other similar CDOs. According to the analysis, 96 percent of the Magnetar deals were in default by the end of 2008, compared with 68 percent for comparable CDOs. The study [6] was conducted by PF2 Securities Evaluations, a CDO valuation firm. (Magnetar says defaults don’t necessarily indicate the quality of the underlying CDO assets.)

From what we’ve learned, there was nothing illegal in what Magnetar did; it was playing by the rules in place at the time. And the hedge fund didn’t cause the housing bubble or the financial crisis. But the Magnetar Trade does illustrate the perverse incentives and reckless behavior that characterized the last days of the boom.

Major Players

Magnetar worked with major banks, including Merrill Lynch, Citigroup, and UBS. At least nine banks helped Magnetar hatch deals. Merrill Lynch, Citigroup and UBS all did multiple deals with Magnetar. JPMorgan Chase, often lauded for having avoided the worst of the CDO craze, actually ended up doing one of the riskiest deals with Magnetar, in May 2007, nearly a year after housing prices started to decline. According to marketing material and prospectuses [5], the banks didn’t disclose to CDO investors the role Magnetar played.

Many of the bankers who worked on these deals personally benefited, earning millions in annual bonuses. The banks booked profits at the outset. But those gains were fleeting. As it turned out, the banks that assembled and marketed the Magnetar CDOs had trouble selling them. And when the crash came, they were among the biggest losers.

Assessment

Of course, some bankers involved in the Magnetar Trade now regret what they did. We showed one of the many people fired as a result of the CDO collapse a list of unusually risky mortgage bonds included in a Magnetar deal he had worked on. The deal was a disaster. He shook his head at being reminded of the details and said: “After looking at this, I deserved to lose my job.”

Magnetar wasn’t the only market player to come up with clever ways to bet against housing. Many articles and books, including a bestseller by Michael Lewis [7], have recounted how a few investors saw trouble coming and bet big. Such short bets can be helpful; they can serve as a counterweight to manias and keep bubbles from expanding.

Magnetar’s approach had the opposite effect — by helping create investments it also bet against, the hedge fund was actually fueling the market. Magnetar wasn’t alone in that: A few other hedge funds also created CDOs they bet against. And, as the New York Times has reported, Goldman Sachs did too. But Magnetar industrialized the process, creating more and bigger CDOs.

Conclusion

Several journalists have alluded to the Magnetar Trade in recent years, but until now none has assembled a full narrative. Yves Smith, a prominent financial blogger who has reported on aspects of the Magnetar Trade, writes in her new book, “Econned,” [8] that “Magnetar went into the business of creating subprime CDOs on an unheard of scale. If the world had been spared their cunning, the insanity of 2006-2007 would have been less extreme and the unwinding milder.”

And so, your thoughts and comments on this ME-P are appreciated. Dr. Mike Burry, please opine. All feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Alternative Investments, Ethics, Investing, Portfolio Management, Risk Management | Tagged: CDOs, CitiGroup, Federal Reserve, Goldman Sachs, hedge funds, Jake Bernstein, Jesse Eisinger, JPMorgan Chase, Magnetar, Merrill Lynch, Michael Lewis, Mike Burry MD, ProPublica, UBS, Yves Smith | 16 Comments »

Understanding Collateralized Mortgage Obligations

Posted on April 23, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Defining Terms and Concepts for Medical Professionals

By Staff Reporters

www.HealthcareFinancials.com

A CMO is a debt security backed by mortgages. These mortgage pools are usually separated into different maturity classes called tranches (from the French word for “slice”). The securities were issued by private issuers, as well as the Federal Home Loan Mortgage Corporation (Freddie Mac). As the mortgages were usually government-guaranteed, CMOs usually carried AAA ratings until their current financial meltdown. The early versions of CMOs were known as “plain vanilla,” but recent developments gave us PACs (planned amortization certificates) and TACs (targeted amortization certificates); among too many others. They were all variations on how principal repayments in advance of maturity date were treated.

Assessment

Link: www.HealthDictionarySeries.com

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated?

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now:Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: "Ask-an-Advisor", Alternative Investments, Book Reviews, Career Development, Glossary Terms, iMBA, Inc., Investing, Recommended Books | Tagged: CMO, CMOs, collateralized mortgage obligations, david marcinko, Dictionary of Health Economics and Finance, Dictionay of Health Insurance and Managed Care, Federal Home Loan Mortgage, Freddie Mac, hope hetico, mortgages, PACS, planned amortization certificates, TACs, targeted amortization certificates, www.healthdictionaryseries.com | 3 Comments »

Physician’s Acquiring Real-Estate

Posted on April 3, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Innovative Funding in Difficult Times

[Staff Reporters]

Real estate can be acquired by physician-investors, even in these difficult times, in many different ways. For example, through direct purchase, participation in a real estate partnership vehicle with other investors [such as general partnerships, limited partnerships, various corporate entities, and, in most states, limited liability companies (LLCs), and investments in real estate securities such as Real Estate Investment Trusts (REITs).

Section 1031

Real estate also can be acquired through tax-deferred exchanges under Section 1031 of the IRS Code, in which a client “trades” one investment property for another, deferring the taxes due on the sale of the exchanged property. This allows the doctor to reinvest “pre-tax” dollars in another real estate investment, potentially benefiting from appreciation on the larger investment. The physician may also exchange one larger property into two or several smaller properties and pay tax consequences on each one as those properties are sold as cash is needed.

Tax and Risk Management

The way a physician takes ownership of real estate will affect the tax treatment of income and profit. For example, having an LLC-owned investment property will provide him/her with the same protection from individual liability as a corporation, while allowing him/her to have much more favorable tax treatment. Real estate can be bought directly by purchasing it in the following manners:

1. Paying cash,

2. Paying a cash down payment and acquiring a loan,

3. Paying cash to the seller who is financing, or

4. Financing the purchase by using either new real estate financing, seller financing, or credit borrowing when a lender is willing to loan solely on the strength of, and the financial statement of, the borrower, or a combination of these.

Trading and Secured Loans

Real estate also can be acquired by trading other valuable assets, sometimes in combination with financing. A client can obtain interests in real estate by making loans on real estate assets that are secured by a deed of trust or a mortgage. Another method is to invest as a participating lender. In such an instance the borrower needs to agree to provide equity kickers or participation in cash flow whereby the lender (doctor) can benefit directly from the real estate performance.

Equity Participation Plans

With an equity participation, the physician-investor can profit or gain from the sale of the property, sometimes in a preferential manner (i.e., the money the doctor loaned is returned, with interest, and a predetermined percentage or portion of the gain is given to the owner/borrower before distribution of the sales proceeds). Similarly, the doctor can participate in annual cash flow, giving a fixed or a fluctuating amount depending on the performance of the investment. As a lender, many of the benefits of ownership of real estate are not available to the MD, but the doctor should have a security interest in the property and no direct responsibility for operation of the real estate investment. Also, if possible, the borrower should provide additional guarantees of performance. The borrower could do this by providing additional security, such as the deeds of trust on the borrower’s house, other real-estate, and the acquired property; bank letters of credit; or guarantees of performance from people other than the party to whom the money is originally loaned.

Assessment

If a physician-investor is considering acquiring or lending on real estate, s/he should check with his professional advisors, including accountants and attorneys, before proceeding. The doctor’s attorney should review any contracts or agreements before the client signs anything. The physician also will need a due diligence review to ascertain both the relative values of the real estate on which money is being loaned and the borrower’s track record and background.

Conclusion

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko

PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE:Financial Planning for Physicians and Advisors
INSURANCE:Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Alternative Investments, Financial Planning, Funding Basics, Investing, Risk Management | Tagged: Alternative Investments, borrowers, credit borrowing, credit ratings, homes, houses, IRS Section 1031, lenders, loans, mortgages, properties, property exchange, real estate financing, real estate investment, real-estate, REITS, seller financing | 6 Comments »

Exercising Healthcare Employee Options

Posted on March 29, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Vital Information for Medical Professionals and Heathcare Workers

[By Staff Reporters]

To a large degree the decision to exercise a stock option will depend on whether the medical professional, hospital or other healthcare services employee is going to hold the stock following the exercise or is going to sell the stock immediately.

A Bifurcated Decision Point

1. If the employee intends to sell the stock, then he or she should try to time the exercise so that the stock is at its highest value.

2. If the employee is going to hold the acquired stock for future investment, then he or she should exercise the option as late as possible under the terms of the option agreement; the employee thus enjoys all upside potential without any investment and has nothing at risk.

Exceptions

There are two exceptions to the general rule:

1. First, if the rate of dividends is sufficient to cover the financing cost, or is at least equal to other investment returns, then exercise of the options makes sense.

2. Second, if the option is an Incentive Stock Option [ISO], the potential application of the alternative minimum tax (AMT) rules may force the employee to stagger the exercise.

Assessment

For more terminology information, please refer to the Dictionary of Health Economics and Finance.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated?

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: Alternative Investments, Investing, Portfolio Management | Tagged: alternate minimum tax, AMT, dividends, exercising options, incentive stock options, ISOs, options, stock options, under water options | 1 Comment »

Medical Real Estate Investments

Posted on March 25, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Physician’s Need to Understand Compensation Methods

[By Staff Reporters]

Property Managers

Medical property managers are compensated for their services on an hourly or fee basis. In addition, they may be reimbursed for expenses related to the maintenance of the property, such as materials, and they may also pay for expenses incurred by subcontractors.

Fees

Fees usually are based on a percentage of gross collected rents, but are negotiable. Property managers of larger medical complexes may receive higher fees than managers of small complexes because of the details involved in managing larger properties. Fees also are affected by the total pro-forma income stream. In general, the better a manager enhances the property’s performance, the more the manager is paid.

Barter

Some owners pay fees and provide rent-free units for resident medical managers to handle on-site leasing; or for offices for managers to take care of buildings warranting on-site property management. Bartered phantom income may be reportable to the IRS.

Real Estate Brokers

Each state has specific requirements regarding the sales and leasing of medical, commercial and other real estate. Every state, however, has the clear and mandatory requirement that no commission or fee can be paid to anyone who is not licensed in that state as a real estate broker, an associate broker, or sales agent if the person represents or works on behalf of another. All fees and commissions must be paid to the company employing the broker, associate broker, or sales agent. Violation of these laws can have serious consequences to both the principal and the real estate broker.

Hybrid Compensation

A medical real estate broker is usually compensated by either a negotiated fee or a negotiated commission; or hybrid of both methods. Neither fees for work or commissions earned are set or standardized in any way. The amount earned or the amount paid is the result of an agreement. The agreement or contract must be in writing, under the Statute of Frauds, just as all real estate offers and contracts must be in writing sales or on leases of more than one year.

Commissions

If a broker is working on commission, h/she is paid only when she is successful and the sales transaction closes and title is passed to the buyer. Sales commission is established either in a Listing Agreement or a Buyers Brokerage Agreement. No fee is due if the sale does not occur. Rates of commission vary widely by city, region, and state. The amount of commission usually is a percentage of the sales price or a set amount. The percentage of commission is dependent on competition; effort required; to some degree, the size of the transaction; and market activity. For example, the sale of a large regional shopping center might be a 3% commission whereas the sale of a small retail building under $1 million might warrant a 7% commission.

Lease Execution Warrants Payment

Leasing commissions are based on gross rental income over the term of the lease, are due when the lease is executed by both landlord and tenant, and can be paid at one of the following times:

On execution of the lease.
Partly on lease execution and partly on occupancy; or
On occupancy, depending on the landlord’s written agreement with the broker.

Leasing commissions usually are a negotiated percentage of gross rents, with the percentage varying dependent on type of lease. For example, the percentage rate of commission might be more on a net lease, in which the tenant pays all expenses, than if the same lease were structured on a gross or fully serviced basis; or in which the landlord provides services within the rents due. Commission on ground leases might range up to 10% and office space might range from 4% to 6%.

Example:

Term: 5 years (60 months)

Monthly rental rate: $1,000 per month

Gross rental income under the lease: $1,000 x 60 = $60,000

Commission calculation (using a 6% rate): $60,000 x 6% = $3,600

The fees paid under sales and leases are usually split between the colleague brokers working on the transaction and are shared between the listing agent and the selling or leasing agent under a co-brokerage agreement between the brokers. This too is a negotiated percentage. It is common for commissions to be split on a 50/50 basis, but it is not the rule. How the commission is divided between brokers depends on the transaction. The commission is often shared evenly between cooperating brokers, but the split ultimately is the seller and listing agent’s decision.

Hard-to-Move Properties

On extremely difficult medical real estate properties [as is seen in many parts of the country today], incentive splits may be offered. Incentive splits offer the selling or leasing agent a greater share of the commission if he or she is successful. Under commission agreements between a seller and a broker, or a buyer and a broker, in which the broker is representing a buyer, nothing is earned until the transaction is complete and the broker has added value, unless spelled out to the contrary in the agreement or the broker is working on a fee basis. On a typical sale, commissions are paid through escrow at closing. Leasing commissions are usually, but not always, paid upon lease execution.

Other forms of payment for property managers and real estate brokers

It has become increasingly common for medical property managers and real estate brokers, particularly when representing a buyer or a tenant, to work on a contractual basis. In these instances, the parties are paid on an hourly or set-fee basis, regardless of whether the transaction is completed. In some cases, a principal may decide he wants only some of the services offered, such as a lease review, and those are also paid on a negotiated basis for the service provided.

Assessment

Combinations of fixed fees and commission incentives also are common, but in most all cases there is not a set amount or standard fee charged by all brokers.

Conclusion

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

LEXICONS: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com

Filed under: Alternative Investments, Career Development, Financial Planning, Investing, Practice Management, Risk Management | Tagged: Buyers Brokerage Agreement, commercial medical real estate, commissions, david marcinko, landlord, lease, leasing commissions, leasing warrants, Listing Agreement, medical office buildings, medical practice rent, medical real estate, occupancy, real estate agents, real estate brokers, real estate commissions, real estate sales, real-estate, rent | 1 Comment »

Recent Elder Housing Updates

Posted on February 6, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Legal Protections, Home Equity Resources and Housing Options

By Staff Reporters

Recently, significant updates and expanded coverage of the housing market for the elderly has occurred. Several items include efforts to protect consumers, and senior medical professionals, from current difficulties in the housing market. For example, these include the following three updates:

1. FINRA on Reverse Mortgages

An alert issued by the Financial Industry National Regulatory Authority (FINRA), warns that:

“as more Americans near retirement age, some financial institutions are aggressively marketing reverse mortgages as an easy, cost-free way for retirees to finance lifestyles – or to pay for risky investments that can jeopardize their financial futures.”

FINRA’s position is that such vehicles should be used only as a last resort.

2. HECM on Primary Residences

The Home Equity Conversion Mortgage Demonstration (HECM) program, which was first authorized by Congress in 1987, helps elderly homeowners meet their financial needs and provides borrowers with insurance against lender default. Now, homeowners can also use a HECM to purchase a primary residence if they are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property they are purchasing.

3. ERA Home-Keeper Program

As a result of the passage of the Housing and Economic Recovery Act of 2008, Fannie Mae announced the discontinuance of its Home Keeper reverse mortgage program, effective as of December 31, 2008. Some state programs encourage the use of reverse mortgages, in contrast to federal warnings, as a financial tool to help elderly homeowners pay for home and community services so they can “age in place.”

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated, as we follow-up our four part series on: At Home or Nursing Home Care for Long Term Care. Comments from physicians and LTC insurance agents are especially valued.

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest E-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: Alternative Investments, Estate Planning, Financial Planning, Funding Basics, iMBA, Inc., Retirement and Benefits | Tagged: ERA, Fannie Mae, FHAA, FINRA, HECM, Home-Keeper | Leave a comment »

Troubles Brewing for Physician Owned Hospitals

Posted on January 23, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Financial Problems Predicted

Staff Reporters

According to the Wall Street Journal, January 22, 2009, a bill making its way through Congress to provide more low-income children with health-insurance coverage might mean financial trouble for scores of physician owned hospitals.

Emergence and Growth

The very existence of doctor-owned hospitals is controversial. But, their numbers have tripled to about 200 since 1990.

The Supporters

Supporters say these hospitals, which usually focus on several lucrative services, such as cardiac care or orthopedics, are highly efficient, saving expenses for both patients and insurance programs, including Medicare.

More: www.HealthcareFinancials.com

The Critics

Critics say physicians who refer patients to hospitals with an ownership stake drive up costs, because they order more tests or perform unnecessary surgery. They argue that such hospitals also cherry pick healthy patients hurting surrounding non-profits hospitals.

Assessment

According to Pete Stark, chairman of the House Ways and Means health subcommittee, the proposed legislation would prohibit “the unethical kickbacks that physicians receive from ownership hospitals, most of which are of questionable safety and quality.”

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Do you agree, or disagree with the thesis; why or why not? Does this mean that not-for-profit hospitals, for-profit entities, or those hospitals with training programs don’t order un-needed tests? Are these hospitals and physician-investors, “crazy” or colorful and sane?

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: "Doctors Only", Alternative Investments, Career Development, Health Economics, Health Law & Policy, Managed Care, Quality Initiatives, Research & Development | Tagged: david marcinko, hope hetico, Peter Stark, physician owned hospitals, Robert Cimasi | 4 Comments »

Understanding and Investing in Collectibles

Posted on October 26, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Sans Cash Flow Entitlements

[By Staff Writers]

Many medical professionals have a broad range of investments that are typically not securities and rarely provide entitlement to specific cash flows. One example is collectibles, which are durable real property expected to store value for the owner.

Definition

According to Jeff Coons PhD, CFP™, the term collectible may represent such items as artwork, jewelry, sports memorabilia, stamps, and wine. While a detailed discussion of the wide variety of collectibles markets is outside the scope of this post, there are common characteristics of collectibles as an investment.

Common Collectible Characteristics

First, the value of a collectible generally rests entirely in the eye of the beholder. Since there is typically no cash flows associated with a collectible, unless the collector charges at the door for a look at their collection, the value of the collectible is only what another collector is willing to pay for that particular item.

Second, while there are some collectibles that may be considered standardized across individual pieces in terms of quality and other defining characteristics, collectible investments are generally unique. As a result, there is typically not an active market with prices established on a regular basis for most collectibles in a manner similar to the stock and bond markets.

Assessment

In total, the lack of ongoing cash payments from a collectible and the general non-comparability of items result in the collectibles market being more of a knowledge-based market than most of the investments discussed on the E-P. Since the value of a collectible is limited to the amount that another collector-investor is willing to pay for the item, a knowledgeable investor may be able to benefit from the lack of information of another investor.

By the same token, if a physician-investor does not have superior information regarding the value of a collectible, then the basic lack of economic fundamentals behind a return assumption for such investments makes collectibles generally less attractive as compared to investments providing ongoing cash payments.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

***

Filed under: Alternative Investments, Investing | Tagged: collectibles | 2 Comments »

Fractional Interests in Real-Estate

Posted on August 17, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

What is it Really Worth?

Staff Writers

If real-estate constitutes a large portion of your estate, as a mature physician, you should be familiar with how fractional interests are valued. This may be especially true during the current sub-prime mortgage debacle in this country.

It’s all About Control and Marketability

Fractional interests are generally subject to two general categories of valuation adjustments: [1] lack of control and [2] lack of marketability.

Lack of Control Discounts

Typically, appraisers first determine the value of the underlying real-estate asset as a single interest, applying one or a combination of approaches, including (1) the income approach, (2) the replacement cost approach, or (3) the comparable sales approach.

Determining Factors

In analyzing a fractional ownership interest, the appraiser needs to understand what investment risk and return factors change as the physician investor moves from fee-simple ownership to a fractional interest.

And, when the fractional interest is in the form of a partnership or other unincorporated business format, additional analysis will be necessary since these organizational forms are based upon contractual agreements among the investing parties, and upon state statutes that apply to each type.

It is usually somewhat difficult to obtain meaningful valuation data for fractional interests, and the total discounts realized are usually not separable into lack of control and lack of marketability factors. Numerous studies have been conducted by reputable valuation firms; with often ambiguous results.

Probably the most reliable data in determining lack of control discounts are those derived from the sale of minority blocks of stock of a real-estate corporation and those for publicly traded REITs.

Lack of Marketability Discounts

With respect to lack of marketability discounts, the best source appears to be sales of restricted stock, which show larger discounts for OTC stocks versus NYSE or ASE securities. These restricted stock studies cover a span from the late 1960s through today and traditionally indicated an average price discount of 35% until a few years ago. Today of course, this discount has increased with recent events.

Additional evidence comes from studies of IPOs by comparing the IPO stock price with the price at which the company’s stock traded in private transactions prior to the IPO. These studies indicate lack of marketability discounts of 40% to 50%, or more, in some cases today.

Assessment

Data from past studies provided appraisers, and physician-investors, with a solid arsenal of analytical weapons and data to draw from when a fractional ownership interest was to be appraised. Again, the situation has drastically changed in 2008, and into the near-future, at least.

Conclusion

Do you own any other fractional investments; like plans or boats? In today’s environment, how do you value fractional interests in real estate? Please comment and opine; the more experiential the better.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Executive-Post, or find it helpful, interesting and informative? Want to get the latest E-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Copyright 2008 iMBA Inc: All rights reserved, USA, unless otherwise noted. Use is restricted to Executive-Post subscribers only. No redistribution is allowed. To avoid violation of iMBA Inc copyright restrictions and redistribution policy, please register for your own free Executive-Post membership. Detailed information and registration links are available at:

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Alternative Investments, Estate Planning, Financial Planning, Investing | Tagged: fractional interests, real-estate, REITS | 2 Comments »

Risky Non-Qualified Deferred Compensation Plans

Posted on August 15, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Are They Worth the Risk to Physician Executives?

By Staff Reporters

The use of nonqualified deferred compensation plans in corporate healthcare administration has grown substantially in the past 10 years; for several reasons.

Reasons for Popularity

For example, senior physician-executives are becoming subject to lower contribution and benefit limits in qualified plans, are involved in more mid-career change hires, are being subjected to greater emphasis on performance-based compensation, and may experience higher income tax rates in a potential democratic administration in 2009.

Any financial advisor who works with senior physician-executive clients participating in such plans must thoroughly understand how nonqualified plans work and how they can affect every aspect of an executive’s finances.

Advantages

The advantage of tax deferral offered by nonqualified plans may, however, be more than offset by the risks to which the funds in these plans are subjected. Physician-executives should carefully evaluate their exposure to a retirement income shortfall, which may result from having a major portion of one’s retirement nest egg tied to unsecured capital. Individual indemnity insurance may need to be purchased to protect against this risk.

Guidelines

Some useful guidelines for the physician-executive and his/her financial consultant follow:

Review nonqualified plan documents, especially when plan provisions require client action or change.
Summarize the provisions of previously signed deferral agreements and other nonqualified plan statements, especially amount, timing, and method of payouts.
Analyze financial security under various retirement scenarios.
Review current estate plan instruments to determine if trusts are funded with nonqualified plan assets.
Update the asset allocation model to reflect any constraints imposed by the nonqualified investments.
Plan for potential constructive receipt.
Modify projected annual cash flows to allow for additional Medicare tax payments.
Quantify future payments from all nonqualified plans and the effect on marginal tax rates.

Assessment

The risks involved in the tax deferral offered by nonqualified plans occur because a senior physician-executive may:

Bet his or her long-term security on the viability of a single company.
Become over-dependent on unsecured funds.
Incur extra estate taxes because of failure to properly plan for plan distributions.
Fail to diversify because of limited investment alternatives in the plan.
Become subject to the constructive receipt problem and possibly to FICA tax at an earlier than expected time.

Conclusion

Please comment and opine on the above relative to the current tax structure, as well as a potential future change by political fiat?

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Copyright 2008 iMBA Inc: All rights reserved, USA, unless otherwise noted. Use is restricted to Medical Executive-Post subscribers only. No redistribution is allowed. To avoid violation of iMBA Inc copyright restrictions and redistribution policy, please register for your own free Medical Executive-Post membership. Detailed information and registration links are available at:

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Medical Executive-Post.

Filed under: Alternative Investments, Estate Planning, Financial Planning, Investing, Retirement and Benefits, Taxation | Tagged: non-qualified deferred compensatino plans | 1 Comment »

Economics of Variable Annuities

Posted on July 18, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

The “Ups and Downs” of Variable Investments

[By Staff Writers]

The chief advantage of variable annuities is that investment income or gains are not currently taxable. However, when distributions are made, all gain is ordinary income, even if substantially all of the gains realized on the investment were capital gains.

Investments made directly by a Family Owned Business [FOB] member, for example, does not achieve tax deferral. But, assuming the dividends and other income are small (e.g., a growth portfolio), and all gains are capital gains taxed at the maximum rate, then direct investment may be a far superior method of investment.

Forbes summed it up, saying, “Don’t be a sucker!”

Despite Forbes’ warning, variable annuities are not necessarily an easy investment decision.

Sales Growth

Sales of variable annuities have continued to grow despite the reduction of capital gain rates in the recent years of the Bush Presidency, and the future is unknown. But, if the deferral is long enough, or if the portfolio throws-off ordinary income (e.g., a bond portfolio), then variable annuities may be desirable. However, doctors and medical professionals should exercise caution about variable annuities.

Fees and Expenses

Variable annuity fees vary widely from carrier to carrier but in many cases they are still high, putting such investments at a competitive disadvantage. If the fees are reasonable, and the medical professional client intends to invest in high yield bonds (also know as junk bonds), then a variable annuity can be attractive.

The same is true for traders who move in and out of funds and earn a large amount of short-term capital gains. In any event, all doctors should check the fees charged by the insurance company because they vary widely. Some funds that charge fees also have outperformed other funds.

Taxation

Investing in traditional equity can give rise to dividends of 1.5% (the average) that is subject to taxation. Variable annuities shelter the dividends, but at a cost often reaching 1.25%. This is not exactly an attractive investment trade-off.

Capital Gains

In addition, all capital gains derived from the portfolio are taxable as ordinary income when distributed; also not a good result.

Distributions upon Death

Assets held outright get a step-up in basis upon death. Variable annuity distributions are income-in-respect-of-a-decedent. Thus, there is no step-up in basis. This is harsh taxation, and the combined estate and income taxes can be 100% (e.g. the decedent’s estate may be is subject to a 5% surtax).

Thus, a 55-60% estate tax and a 35-40% ordinary income tax rate results in 100% taxation and confiscation. Counting the limitation on a deduction, the effective tax rate might be 42%, causing the combined taxes to exceed 100%. If the estate taxes can be deducted from the income taxes, the taxation of variable annuities is lessened.

Moreover, if a family business client has a charitable interest, using income-in-respect-of-a-decedent property to fund a gift to charity is a sound planning idea (the charity pays no income taxes and gifts to charities are not subject to estate taxes). Here, variable annuities may have one big advantage; they can prevent creditors from reaching assets. However, if this is a concern then the same results can be achieved by using an asset protection trust.

Assessment

Tax deferral always appeals to medical and other clients, but in some cases, variable annuity tax deferral may not be a effective tax planning tool. In addition, postmortem planning can help to reduce the tax burden to children.

Variable annuities require clear analysis and discussion. Doctors, and their accountants and financial advisors should discuss this issue before investing in them. The reason, quite simply, is that most doctors do not like to pay current tax and they may leap at a variable annuity which can result in increased taxation. How ironic!

Conclusion

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Filed under: Alternative Investments, Estate Planning, Financial Planning, Insurance Matters, Investing, Surveys and Voting, Taxation | Tagged: variable annuities | 6 Comments »

Worthless FOB Stocks

Posted on June 27, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Getting the Tax Deduction

Staff Writers

All physicians and other investors should know when their stock becomes worthless.

Example Scenario:

Some time ago, an FOB physician investor [Family Owned Business] founded two FOBs: One was doing fine while the other floundered. Under the IRS Tax Code, the investor can receive a loss deduction on the second FOB if: 1) the stock is worthless, and 2) the loss is claimed in the year it became worthless.

Definition of “Worthless”

The problem often is determining when a stock is completely “worthless”—there is no deduction for partial worthlessness. A company does not have to file for bankruptcy or end operations for its stock to be worthless.

Generally, if an FOB’s liability greatly exceeds its assets, and there is no real hope of continuing the business at a profit, the stock is considered worthless under the Tax Code. Often, to prove a worthless loss deduction, the business owner sells his or her stock at a nominal price.

Loss is Limited

The amount of the loss has traditionally been limited to the business owner’s tax basis. Capital losses are used to offset capital gain, but $3,000 can be used as a deduction against ordinary income. The $3,000 can be carried forward indefinitely.

Section 1244

If the business’s stock qualified as Section 1244 stock, the loss is an ordinary and fully deductible loss (subject to dollar limitations). In these cases, the loss is deductible against ordinary income. Obviously, if a loss is deductible against ordinary income in the first year, the taxpayer will receive a significant tax savings.

Most FOBs issue Section 1244 stock if it is qualified as a “small business corporation.” To qualify, the total capital invested at the time the stock is issued cannot exceed $1 million. In addition, the FOB must have less than 50% of its gross receipts from passive sources: rents, royalties, dividends, and investment income.

In other words, the majority of the receipts must come from operating an active trade or business. Finally, the maximum loss is $50,000 for an individual; $100,000 for a couple. When organizing an FOB, the stock should be classified as Section 1244 stock if it qualifies.

Assessment

Financial professionals and accountants must advise their clients about “worthless” FOB stocks to ensure the deduction is claimed. Medical professionals should also be aware of this concept.

Conclusion

Have you ever had a worthless stock? How did you deal with it and what were your experiences? What has changed relative to the above review, if anything? Is Section 1244 indexed? Please opine and comment.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Referrals: Thank you in advance for your electronic referrals to the Executive-Post.

Filed under: Accounting, Alternative Investments, Investing, Portfolio Management, Taxation | Tagged: FOB, FOBs, Section 1244 stock loss, stock loss deduction, worthless stock | Leave a comment »

Interest Rate Options

Posted on May 21, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Treasury Issues Options

[By William H. Mears; CPA, JD]

Interest rate options are usually options on Treasury instruments, Treasury bills, notes, and bonds. The face values used are $1 million for Treasury bills and $100,000 for T-notes and bonds.

Purpose

With these options, a physician or other investor will bet on the direction of interest rates. When interest rates decline, the prices of bonds increase. This phenomenon has been experienced in the United States for the most part since the late 1980s. If interest rates increase, bond prices decrease.

Assessment

The value of the underlying security (the bond itself) will determine the value of the option. The investors who believe that interest rates will increase and that bond prices will go down are bearish. As bearish investors, they will buy puts and sell calls. Bullish investors will sell calls and sell puts.

***

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE:Financial Planning for Physicians and Advisors
INSURANCE:Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Alternative Investments, Investing, Portfolio Management | 2 Comments »

Explaining Financial Options to Physicians

Posted on May 9, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

A Misunderstood Derivative

By William H. Mears; CPA, JD

By David E. Marcinko MBBS DPM MBA

An option is either the right to buy or sell an asset, or the obligation to buy or sell an asset. Options are derivative instruments; i.e., they derive their value from the performance of the asset upon which they are based—the underlying asset or security. This can be a stock, an equity index, a futures contract, or a Treasury security. Types of options include:

Equity options
Stock index options
Interest rate options
Foreign currency options

Multiple Terms and Definitions

A call option contract gives the physician-investor or buyer the right, but not the obligation, to buy a stock at a specified price, subject to an expiration date.
The put option contract gives the buyer the right, but not the obligation, to sell a stock at a specific price, subject to an expiration date.
The right to buy or sell the underlying security is purchased for a price called the premium.
The right to buy or sell the underlying security occurs only for a period of time and at a specific price.
The time period of an option is called the duration.
The day that the option ends is the expiration.
The price at which the option can be exercised is called the strike price.
Therefore, the right to buy or sell a security under an option contract exists only for a specific period and ceases to exist at the expiration of the option period.
The seller of an option, the individual who has received consideration for granting to another a right, is obligated to perform under the option contract.
The seller of a call option, also called the writer, has sold the right to buy that stock.
The seller of a call option is obligated to sell the stock to the call option owner if the option is exercised.
The seller of a put option is obligated to buy the stock from the put option buyer if the option is exercised.

Option Components

Listed options are traded on an exchange and are packaged and available on stock markets and indexes with various durations at various strike prices.

Over-the-counter options are options that do not trade on an established exchange but are contractual arrangements between two parties.

Because these options are not prepackaged, they can be custom tailored as to strike price, expiration date, and manner of settlement, that is, cash settlement or settlement by delivery of stock.

All listed and over-the-counter options have an expiration date.

American-style options can be exercised at any point in time prior to expiration.

A European-style option creates the right or obligation only at the expiration of a term of an option.

When physician investors purchase or sell an option, they are interested in the cost of that option or the income generated by the sale of that option.

The option premium—the cost of the option—is comprised of the intrinsic value of the option plus its time value.

The intrinsic value of the option is the option’s in-the-money amount.

Options that are out-of-the-money are priced on the basis of time value only.

Option Market Price

The major factors that affect the market price of an option are:

The price of the underlying asset
The strike price of the option
The time remaining until the option expires
The prevailing interest rates
The expected volatility of the underlying asset

These factors work in the following manner:

1 As the price of an underlying asset increases, the call price goes up and the put price goes down.

2. As the strike price of the option increases, the call price goes down and the put price goes up.

3. As the time to expiration goes out, the call price goes up and the put price goes up.

4. As the risk-free rate of return on money goes up, the call price goes up and the put price goes down.

5. As the volatility in the underlying stock increases, the call price goes up and the put price goes up.

6. As the dividend payout rate of the underlying asset increases, the call price decreases and the put price increases.

When a physician-investor purchases an option, the underlying asset will have a market value. The investor may purchase a call option, which is available for exercise at the same market value (an at-the-money option), at an under-the-market price (in-the-money), or with an exercise price that is over the market value (in-the-money). The exercise price of these options is the strike price.

Option Volatility

The volatility of the underlying asset will also play a significant role in the pricing of an option. The more volatile a stock is, the more likely it is that its performance will be unpredictable and that the strike price will be reached or exceeded and, therefore, that the option will have value. Options on volatile stocks will have a higher premium.

Options contracts, once purchased or sold on an opening trade, can either be (1) traded on a closing trade or allowed to expire worthless or (2) exercised. If an option contract is traded, it will be treated like any other security that is traded. The contract will have proceeds of sale, a cost basis, and a holding period.

All options have a fixed expiration date. All listed equity options, regardless of their particular cycle, expire at 11:59 p.m. Eastern Standard Time on the Saturday following the third Friday of the expiration month. The option actually does not expire until Saturday, but customers must act by 5:30 p.m. on the Friday prior to the expiration date. As an option approaches its expiration date, it diminishes in value.

Agreements

Options also allow individuals to act on the basis of a predetermined contractual agreement, regardless of market conditions for a specific period. Therefore, as the option approaches its expiration date, the option diminishes in value. It is during the early part of an option’s life that it is most valuable proportionately.

Option Contracts

An option contract will always trade in sizes of 100 shares. The description of an option contract will always contain the name of the underlying security first. The name of the security will be followed by the expiration month, the exercise price, the type of option, and the premium; for example, 1 XYZ MAR 5 call 2.

At maturity, a call option will have a value that will be the greater of zero or the strike price minus the strike price. At maturity, a put option will have a value of the greater of zero or the strike price minus the stock price.

If an option contract is allowed to expire worthless, it will be treated for tax purposes like any other security that has either no proceeds or cost basis. In either case, one leg of the trade will be zero. The position will either be closed in its entirety at a gain or be closed in its entirety at a loss.

If an option is exercised, the buyer of the contract decides that the contract will be exercised. After the exercise, the buyer of a call will own the underlying asset, and the buyer of a put will sell the underlying asset. If an option is exercised, the seller of the option is always obligated to act under the options contract.

Conclusion

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Filed under: Alternative Investments, Investing, Portfolio Management | 1 Comment »

Real Estate Investments

Posted on February 27, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Doctors Must Understand the Unique Risks

[By Julia O’Neal; MA, CPA]

Real Estate [RE] requires a separate discussion of unique risks relative to other financial asset classes.

Macro Economic and Other Risks

RE investments possess not only the macro-economic risks found in all financial assets, but other unique risks, as well.

For example, these risks include illiquidity, lack of a continuous auction trading market, and quoted prices that may or may not represent intrinsic value.

Lack of Diversification

Given the large size of many real estate projects, it may also be difficult to diversify adequately and reduce total portfolio risk.

And, because of the chance of segmented markets, the risk of imperfect information is also present.

Assessment

Remember, real estate is not easily divisible and is nonhomogeneous; such risks cannot be fully negated through diversification.

Subscribe MEDICAL EXECUTIVE-POST?

Member Statistics

ME-P Information & Content Channels

Ann Miller RN MHA [Managing Editor]

CERTIFIED MEDICAL PLANNER® program

Most Recent ME-Ps

PodiatryPrep.org

ME-P Free Advertising Consultation

Medical & Surgical e-Consent Forms

iMBA Inc., OFFICES

ME-P Publishing

SEEKING INDUSTRY INFO PARTNERS?

Reader Comments, Quips, Opinions, News & Updates

Start-Up Advice for Businesses, DRs and Entrepreneurs

Up-Trending ME-Ps

Capitalism and Free Enterprise Advocacy

OIG Fraud Warnings

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Sans Cash Flow Entitlements

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Calendar

Advertising Info:

Book Offerings:

Dictionary Offerings:

Dr. David Marcinko [Publication List]

Education Online:

Health Dictionary Series Wiki Project

Lower Extremity Medicine & Surgery

Pending NIHCM Grant Applications:

Practice Lists:

Professor Marcinko

Related Blogs:

Speaker's Bureau:

Thought-Leaders:

White Papers: