Black finance expert Ryan Mack brings us advice from a place of real heart to help hard-working Americans deal with the mortgage mess. With his warm brand of personal finance advice, Mack's strongest words to the community are: "If you are having problems paying your mortgage DO NOT WALK AWAY FROM YOUR HOME!" In part one of our two-part interview, learn more about how we got into this housing crisis, how it has affected the general economy and what you should do now to protect your home.

How did you become a finance expert? What inspired you to pursue this goal?

When I was on Wall Street making great money I felt empty, because I was not an effective contributor to my community. I knew that finance was my passion, but I also knew that sitting in a cubicle making money only for the sake of self-empowerment was not my purpose.

Like too many families in America, many people in my family were not financially literate. My passion was to change that. In addition, I was always getting asked personal finance questions from peers who knew I was a stock trader. But trading is different from personal finance. To address these questions, I began to study personal finance and started a Yahoo group called MakingMoneyWork, which provided tips and strategies to over 200 members through weekly newsletters.

I loved this so much, I decided to pursue a full-time career in personal financial planning. I got an offer from a financial planning firm, but I turned it down at the last minute because after expressing my desire to educate my entire community I was told, "unless you work with ONLY high net worth individuals, you are wasting your time."

I was not going to quit a job that did not allow me to help my community, only to take a job where I could not help everybody, rich to poor. This inspired me to start my own firm that placed a high value on educating the average person. This new idea for a democratic financial planning firm required that I take a year off to develop my plan, create a personal financial literacy course (that I taught at local colleges), and read extensively on personal finance. I then walked the community, reaching out and teaching any group I could find.

Can you explain the whole housing crisis mess and how we got into it?

The housing/financial/economic crisis was caused by a perfect storm of failures in the government, the corporate world and individuals. [See related video below.]



There were too many individuals who decided before they were ready that they wanted to purchase a home. The real estate market was booming and many became fearful that they were going to "miss the boat" if they did not act quickly. Mass fear and impatience caused an already high real estate demand to rapidly increase. Some of these people were large credit risks, and became candidates for the infamous subprime loan.

The foreclosure rate has never really been higher than 1 in 9 homes nationally, so throughout most of this crisis almost 90% of all homeowners have been responsible. However, because of the greedy actions of corporations, the effects of the other 10% who foreclosed had a magnified impact on the economy. Here's how.

Somewhere along the line, corporations realized that interest rates that were being collected from subprime loans were very profitable. This caused the creation of specialized mortgages which helped to spur demand for those kinds of loans. Thus, those with really bad credit and very low/sporadic income were able to get these loans very easily -- but at high interest rates. The high interest rates being collected on these loans were attractive to everyone in the finance business, so the local banks who originally issued these loans were able to sell them to larger institutions (such as Lehman Brothers or JPMorgan), which then alleviated the local banks of any risk once these high-risk loans were passed along. This then spurred the original banks to issue even more subprime loans, also passing those along.

These larger institutions (Lehman Brothers, JPMorgan, etc.) began to purchase and bundle these loans into securities (or higher-end financial instruments, similar to bonds) which they sold in other financial markets. This was attractive as an investment vehicle, because the large interest rates being charged to people with bad credit seeking to buy homes created sizable profits. That is, if everything went well.

Due to the increased risk associated with these securities (which were based on the economic solvency of people with bad credit and low income), in order to sell the securities in secondary markets, financial institutions had to offer "insurance" in case mortgage defaults caused the value in the security to go down. Other investment managers began to see a growing market for buying this "insurance," also known as "derivatives." But they began to purchase these products as a "bet" that the purchasers of these properties would default. Thus, they would collect profits if risky subprime loan holders defaulted.

The market for subprime loan-backed securities eventually grew from $500 million to over $60 trillion (yes, with a "T"). When that 10% of risky loan holders defaulted on their properties, causing the value of the securities to fall, trillions of dollars were called to be collected by the holders of the "insurance." The only problem is that the banks were so over-leveraged from having extended so many loans, they did not have enough money to cover these losses. Hence we saw Lehman Brothers go bankrupt and the rest is history.

The government allowed all of this to happen with very little oversight. With more regulation, this disaster could have been prevented. The Obama administration has a lot of work to do to restore confidence in the public that the government actually has control over Wall Street greed.

Wall Street greed, Main Street's over-confidence and the government's lack of regulation all contributed to this mess. All elements of society must play a role in fixing this.


How does the housing crisis in the U.S. affect the international economy?

The housing crisis caused the lending aspect of the banking system to collapse. This collapse caused a severe decrease in lending. Banks don't only lend domestically; they also lend globally to individuals, businesses and other banks. The circulation of capital in our economy is crucial to credit availability both domestically and abroad. Banks are now hesitant and/or unable to grant loans because of the billions of dollars of bad assets that they hold on their balance sheets. This stops the flow of money for starting and growing businesses, buying cars and homes and financing education. The ripple effect has been a grinding halt to the economy internationally, as businesses stop expanding and people stop buying due to lost income and fear of further economic decline.

There are provisions in the stimulus plan that help mortgage crisis victims. Please help us understand how people can best use these benefits.

The Federal Reserve Bank has injected trillions of dollars into banks to help to strengthen their balance sheets. In the Troubled Asset Repurchase Program (TARP), the Obama administration pledged $200 billion to lending giants Fannie Mae and Freddie Mac, which are involved in approximately half of the nation's mortgages, to keep interest rates low. There was also another $75 billion dollars included in the Homeowner Stability Initiative as part of the TARP funds.

To put it simply, if you have a Fannie Mae or Freddie Mac loan, and your loan-to-value ratio is less than 105%, you can refinance your home. If you are behind in your payments, and your loan is not under Fannie Mae or Freddie Mac, the $75 billion in the plan will help the government work with your lender to get your payments down to as low as 31% of your income.

What are some additional things people should do now if they are having difficulty paying their mortgage?

If you are having problems paying your mortgage DO NOT WALK AWAY FROM YOUR HOME! Here are a few things you can look into right away, if you feel that you are in danger of becoming a foreclosure statistic.

Step One: Assemble a Plan
Many people try to contact the lender before they have a plan themselves. Put yourself in the seat of the lender whose capital is at risk. Would you work with someone who doesn't seem to have a plan of action to repay your funds? Write out a budget, articulate your goals on paper and have a plan for yourself before you talk to the lender.

Step Two: Act Quickly

Your job is to contact them before they have to contact you. If you see yourself in a financial bind and might miss a payment, BEFORE you miss that payment for the first time you should arrange a meeting with your lender to discuss your situation. It is costly for them to go through with a foreclosure and in this environment lenders do not want extra leverage on their balance sheets that they are accountable for. They will appreciate you taking the initiative to avoid this.

Step Three: Know Your Options

• Were you a victim of predatory lending? A good mortgage attorney will help you to pursue your rights. This is often the least pursued option, but recent events are exposing how blacks were often targeted for expensive sub-prime loans through racist practices. See if you may have been a victim of these practices, and if legal proceedings are under way against your lender.
• Loan Modification – You might be able to modify the rate, the balance of the loan, the fees owed for being delinquent or even the term of loan. This is purely up to the discretion of the lender.
• Loan Workout – You can negotiate the best type of plan that fits your needs. Some of your options are:
• Pre-foreclosure Sale – Many people cannot repay their loan even if their payments are lowered. They then have the ability to sell their property at a lower price compared to what is owed to the lender. This is similar to a short sale. According to the Department of Housing and Urban Development, you must meet these qualifications for pre-foreclosure: If you were not able to pay for at least two months, then a homeowner will be able to sell in 3-5 months, if the lender gives the homeowner a new appraisal.
• Deed-in-Lieu of Foreclosure – This is not as bad as a foreclosure but is does require that you relinquish your property. To use this instrument, the borrower conveys all interest in a real property to the lender to satisfy the loan and to avoid foreclosure proceedings.

Check back next week for part two of our interview with Ryan Mack, who bring the Black Voices audience the best advice for how to thrive in the current mortgage environment.

---

President of Optimum Capital Management, Ryan Mack, has a life mission to build and develop a durable financial empire geared towards educating his community and beyond. Ryan Mack graduated from the University of Michigan Business School (ranked number one in the country) with a concentration in Finance. His career in equity markets began in Detroit, Michigan as a stock trader and later as a trader for the largest NASDAQ trading firm in the nation, Knight Securities. Having a passion for teaching, he established his own financial awareness group in 2003, for which he began to publish regular newsletters about various financial issues of interest to people from all income levels. Ryan Mack also blogs for The Huffington Post.