Advanced Personal Finance

I’ve found getting discounts on auto insurance is just a matter of asking. The insurance company’s not going to go through a list of possible discounts with you to see which apply. But ask and, often, ye shall receive.

Here is a list of auto insurance discounts I’ve found common among the couple of carriers I’ve had.

• Supplemental Restraint Systems. Airbags are ubiquitous now, even among used cars, so this will often be a given, but check to make sure it’s applied to your quote.

• Daytime running lights. I find it hard to believe, but the insurance industry believes these reduce accidents. Whatever. If you have them, make sure the insurer knows.

• Security system. Know the specifics of your system when you ask for the discount. There are systems that just make noise and then there are ones that completely disable the car. If you have a Lo-Jack, that’ll help, too.

• Multiple cars. Having several cars under one policy will get you a discount.

• Student ‘good grades’ discount. Plenty of insurers offer a discount to students who have a good grade point average. I’m not sure what documentation they require, though, since this never applied to me.

• Low mileage. If you’re like me and put very few miles on your car, you get a break on coverage.

• Defensive driving course. If you take an approved defensive driving course, you get a nice break on insurance.

• Multiple insurance products. I can’t personally attest to this, but I understand you get a small discount if you have several insurance policies with a single insurer.

Anybody have any I missed?

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I just found a quirky finance-related site called Wallstrip. It’s kind of like Youtube for finance nerds.

They talk a lot about specific stocks, which I’m not really in to, but plenty of people are. Investing is the main thrust of the site.

Anyway, I thought it was kind of cool so I thought I’d pass it along.

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BusinessWeek had a short interview with investing legend John Bogle. As I’ve done before, I’d like to highlight a couple of quotes from the man.

• On whether to get out of the market: “[Y]ou’ve not only got to get out right, you’ve also got to get in right. You must be right twice.”

• On the overuse of credit: “…we have a system where there has been much too much easy credit and aberrant behavior…” and “We know we have a world that operates on credit. Too much credit and too loose credit. So we have a price to pay for getting too irrationally exuberant.”

• On long-term investing: “In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.”

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Yesterday when I read about the second Mattel toy recall, I was struck by the irony of the situation. For days now, the U.S. stock market has taken a pounding because of liquidity fears. The conventional wisdom says that a supposed ‘collapse’ in CMOs, the U.S. (and by association, the entire world) economy is in danger.

There’s no doubt that some investors in CMOs have suffered severe losses. Some of those investors are Chinese.

So I found it more than a little ironic that the U.S. and China are just trading toxic products. We sell them nuclear waste bonds. They sell us lead-painted toys.

Don’t misunderstand - I am by no means making light of the Mattel recalls. To paraphrase the Mattel CEO, I’m a father of a small kid, so I have a keen interest in the issue. In fact, my daught has a Barbie and Tanner that has been recalled.

But I’m sure for every American asking how the Chinese could sell dangerous toys to them, there is a Chinese asking how America could have sold them such dangerous bonds.

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With the deterioration of the housing market, there’s been an increased interest in ’short selling’ homes. I didn’t know much about short selling, so I did a little research. I should say up front that I don’t have any personal experience in this topic (thank goodness); here’s what I learned, though.

What is a short sale?

I covered the definition of a short sale in a previous post, but this is a refresher. A short sale is the sale of a house that has a mortgage greater than the current market value of that property. The bank agrees to forgive the outstanding mortgage balance after the sale completes. Short sales aren’t a given - the borrower must negotiate with the lender the accept the short sale.

Why would the bank agree to a short sale?

A short sale is isn’t so much a win/win as it is a lose less/lose less for both parties. The borrowers don’t have a place to live anymore. The lender’s don’t get paid back all they’re owed. On the other hand, the property doesn’t go to foreclosure, which is good for both of them.

In a foreclosure situation, especially in a down market, the lender can expect to recover less than if the property is sold short. Maybe they’d recover 75% 50% in an auction, but 85% in a short sale. It’s obviously not ideal for the lender, but at least they don’t have to sell the property.

The drawbacks for a borrower

As you would expect, there are several drawbacks to short selling for the borrower. Perhaps the biggest one is that they no longer have a place to live and any money they did put into the house is gone. Also, a short sale is going to show up on their credit report. It’s hard to say exactly what the effect will be on credit score, but anecdotally it’s somewhere in the neighborhood of a 80-100 point drop. That’s nowhere near the penalty for a foreclosure, but still significant.

There’s also another pitfall - taxes. The IRS treats the forgiven mortgage amount as income, so you’re going to pay taxes on that amount. When you’re talking about mortgage-size amounts of money, this could be very significant.

Other things to note about short sales

There are several other points about short sales to note. First, a lender might balk at paying the commission for a broker, which could complicate things.

Second, it takes some work to convince the lender to accept a short sale. You’ll have to be several months behind on payments and most likely have to show evidence of significant hardship that caused you to get so behind. Your mortgage resetting to a too-high-for-your-budget payment isn’t good enough. If you’ve lost your job, divorced, or have medical bills, you’re in a better negotiating position. Well…regarding the short sale, that is.

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