Mortgage abstract
A computerized mortgage loan system and process to enable borrowers
to design mortgage loans that meet their particular individual needs
and financial goals, and that can be adapted to fit changing needs
and goals is provided. The loan requirements of the borrower are
obtained and applied to a set of rules for combining loan product
features. One or more loan recommendations are determined and presented
to the borrower. The loan recommendations include customized combinations
of loan features based on the loan requirements of the borrower
and the rules.
Mortgage claims
What is claimed is:
1. A computer-implemented method for providing a borrower with
a mortgage loan that is customized to meet the requirements of the
borrower, comprising the steps of: obtaining loan requirements from
the borrower by soliciting responses from a user using a computer-implemented
user interface comprising at least one input device and at least
one output device, determining at least one mortgage loan product
having a plurality of loan features, the plurality of loan features
including interest rate and loan term, and the plurality of loan
features further including a customized combination of loan features,
the customized combination of loan features being selected to meet
the loan requirements from the borrower, wherein the customized
combination of loan features includes a plurality of the loan features
selectable from the following: fewer than 12 months of payments,
graduated payments, portability, payment coverage for missing a
loan payment without adverse credit history consequences, a borrower-selected
payment date selectable by the borrower from any day through the
end of each month, and a borrower-selected payment frequency selectable
by the borrower from a plurality of possible payment frequencies,
including bi-weekly and monthly, applying the loan requirements
from the borrower to a set of stored rules for combining loan features,
the set of stored rules being configured to assess compatibility
of the customized combination of loan features with each other,
calculating at least one of a price and an interest rate for at
least one customized mortgage loan product for presentation to the
borrower together with the at least one customized loan product,
wherein calculating of the at least one of a price and an interest
rate is executed by a data processor, and wherein the computer-implemented
user interface solicits the response by providing a pre-fill form/questionnaire
comprising a series of questions configured to solicit information
concerning how the borrower ranks the importance of various available
loan features that may subsequently be selected and included as
part of the customized combination of loan features in the customized
mortgage loan product.
2. The method of claim 1, wherein the step of calculating at least
one of a price and an interest rate for the at least one customized
loan product involves the steps of calculating a first price at
which a secondary market purchaser would purchase the at least one
customized loan product and calculating a second price based on
the first price for presentation to the borrower.
3. The method of claim 2, wherein the step of calculating the first
price involves retrieving a required yield from a source of current
pricing for conventional loans and calculating adjustments to the
required yield associated with the features of the at least one
customized loan product.
4. The method of claim 3, wherein the step of calculating adjustments
to the required yield includes applying the features of the at least
one customized loan product to a set of rules for determining the
price adjustments.
5. The method of claim 2, wherein the step of calculating the second
price involves adjusting the first price to reflect a lender add-on.
6. The method of claim 1, wherein the features of the at least
one customized loan product include loan collateral maintenance.
7. The method of claim 6, wherein the loan collateral maintenance
feature is a managed home maintenance plan, the managed home maintenance
plan providing the borrower with coverage to pay at least a portion
of the cost of qualifying home repairs during at least a portion
of the term of the mortgage.
8. The method of claim 1, wherein the features of the at least
one customized loan product include payment coverage for a missed
loan payment, the payment coverage being configured such that loan
payment may be missed by the borrower without adverse impact on
the borrower's credit history.
9. The method of claim 1, wherein a pre-fill form/questionnaire
is provided over a global computer network.
10. The method of claim 9, wherein the global computer network
is the Internet.
11. The method of claim 1, wherein the loan requirements of the
borrower include at least one of specific loan product features
desired by the borrower and financial goals of the borrower.
12. The method of claim 1, further comprising the steps of revising
the loan requirements of the borrower and determining at least one
new customized loan product having features based on the revised
loan requirements if the at least one customized loan product based
on the borrower's previous loan requirements is not selected by
the borrower.
13. The method of claim 1, further comprising the step of processing
an application for a customized loan selected by the borrower.
14. The method of claim 13, further comprising the step of obtaining
a commitment from the secondary market purchaser to purchase the
customized loan.
15. The method of claim 14, further comprising the steps of closing
the customized loan and selling the customized loan to the secondary
market purchaser.
16. The method of claim 15, further comprising the steps of servicing
the customized loan.
17. A computer-implemented system for providing a borrower with
a loan that is customized to meet the requirements of the borrower,
comprising: input means for obtaining loan requirements from the
borrower by soliciting responses from a user trough a user interface
comprising at least one input device and at least one output device,
means for determining at least one loan product having a plurality
of loan features, the plurality of loan features including interest
rate and loan term, and the plurality of loan features further including
a customized combination of loan features, the customized combination
of loan features being selected to meet the loan requirements of
the borrower, wherein the customized combination of loan features
includes a plurality of the loan features selectable from the following:
fewer than 12 months of payments, graduated payments, portability,
payment coverage for missing a loan payment without adverse credit
history consequences, a borrower-selected payment date selectable
by the borrower from any day through the end of each month, and
a borrower-selected payment frequency selectable by the borrower
from a plurality of possible payment frequencies including bi-weekly
and monthly, means for applying the loan requirements from the borrower
to a set of stored rules for combining loan features, the set of
stored rules being configured to assess compatibility of the customized
combination of loan features with each other, means for calculating
at least one of a price and an interest rate for the at least one
customized mortgage loan product for presentation to the borrower
together with the at least one customized loan product, wherein
calculating of the at least one of a price and an interest rate
is executed by a data processor, the data processor being coupled
to the user interface through a global computer network, and wherein
the input means solicits the response by providing a pre-fill form/questionnaire
comprising a series of questions configured to solicit information
concerning how the borrower ranks the importance of various available
loan features that may subsequently be selected and included as
part of the customized combination of loan features in the customized
mortgage loan product, the input means providing the pre-fill form/questionnaire
by way of the global computer network.
18. The system of claim 17, wherein the means for calculating a
price for the at least one customized loan product includes means
for calculating a first price at which a secondary market purchaser
will purchase the at least one customized loan product, and means
for calculating a second price based on the first price for presentation
to the borrower.
19. The system of claim 18, wherein the means for calculating the
first price includes means for retrieving a required yield from
a source of current pricing for conventional loans, and means for
calculating adjustments to the required yield associated with the
features of the at least one customized loan product.
20. The system of claim 19, wherein the means for calculating adjustments
to the required yield includes means for applying the features of
the at least one customized loan product to a set of rules for determining
the price adjustments.
21. The system of claim 18, wherein the means for calculating the
second price includes means for adjusting the first price to reflect
a lender add-on.
22. The system of claim 17, wherein the features of the at least
one customized loan recommendation include loan collateral maintenance.
23. The system of claim 22, wherein the loan collateral maintenance
feature is a managed home maintenance plan.
24. The system of claim 17, wherein the features of the at least
one customized loan recommendation include payment coverage for
a missed loan payment, the payment coverage being configured such
that the loan payment may be missed by the borrower without adverse
impact on the borrower's credit history.
25. The system of claim 17, wherein the user is the borrower, and
wherein the global computer network is the Internet.
26. The system of claim 17, wherein the loan requirements of the
borrower include at least one of specific loan product features
desired by the borrower and financial goals of the borrower.
27. The system of claim 17, further comprising means for revising
the loan requirements of the borrower and means for determining
at least one new customized loan product having features based on
the revised loan requirements if the at least one customized loan
product based on the borrower's previous loan requirements is not
selected by the borrower.
28. The system of claim 17, further comprising means for processing
an application for a customized loan product selected by the borrower.
29. The system of claim 28, further comprising means for obtaining
a commitment from the secondary market purchaser to purchase the
customized loan.
30. The system of claim 29, further comprising means for closing
the customized loan and means for selling the customized loan to
the secondary market purchaser.
31. The system of claim 17, wherein the means for determining at
least one loan product includes a matrix of all possible combinations
of the input loan requirements and the loan features.
Mortgage description
BACKGROUND OF THE INVENTION
The present invention relates generally to a computerized mortgage
system and process that permit potential borrowers to customize
mortgage loans to meet their changing needs and different financial
goals.
When considering the purchase or refinance of a home, potential
home buyers consult mortgage lenders such as mortgage companies,
savings and loans institutions, credit unions, state and local housing
finance agencies or the like to obtain the finds necessary to purchase
or refinance their homes. These lenders, who make (originate and
fund) mortgage loans directly to home buyers, comprise the "primary
mortgage market."
When a mortgage is made in the primary mortgage market, the lender
has several options which include: (i) holding the loan as an investment
in its portfolio; (ii) selling the loan to investors in the "secondary
mortgage market" (which includes government-sponsored entities,
pension finds, insurance companies, securities dealers, financial
institutions and various other investors) to replenish its supply
of finds; or (iii) packaging the loan with other loans and exchanging
them for securities like mortgage backed securities which provide
lenders with a liquid asset to hold or sell to the secondary market.
By choosing to sell its mortgage loans to the secondary mortgage
market, or by selling the mortgage backed securities, lenders get
a new supply of funds to make more home mortgage loans, thereby
assuring home buyers a continual supply of mortgage credit.
A secondary mortgage market purchaser finances the loans and mortgage
backed securities it buys for its own mortgage portfolio by the
sale of debt securities in the global capital markets. Working with
investment banks, the purchaser sells its debt to both domestic
and international investors such as central banks, pension funds,
investment funds, commercial banks and insurance companies.
Lenders compete in the primary mortgage market by offering and
advertising various mortgage products typically having predetermined
or "pre-packaged" features. This "one-size-fits-all"
approach to mortgage loans has been both a source of missed opportunities
for lenders and discouragement for borrowers.
SUMMARY OF THE INVENTION
The computerized mortgage loan system and process in accordance
with the present invention avoids the disadvantages to both lenders
and borrowers associated with "one-size-fits-all" mortgage
products. Generally speaking, the method and system according to
the present invention enables borrowers to design a mortgage loan
that is customized to meet the individual requirements and financial
goals of the borrower, and that can be adapted to fit changing needs
and goals.
The preferred method according to the present invention involves
obtaining the loan requirements (e.g., needs, financial goals, desired
loan features) of the borrower, applying the loan requirements to
a set of rules for combining loan product features, and determining
one or more loan recommendations for presentation to the borrower
which include a customized combination of loan features based on
the loan requirements of the borrower and the rules. The preferred
system according to the present invention provides means for effecting
the foregoing preferred process steps.
Other aspects and advantages of the invention will in part be obvious
and will in part be apparent from the specification.
The present invention accordingly comprises the various steps and
the relation of one or more of such steps with respect to each of
the others, and the system embodies features of construction, combinations
of elements, and arrangement of parts which are adapted to effect
such steps, all as exemplified in the following detailed disclosure,
and the scope of the invention will be indicated in the claims.
BRIEF DESCRIPTION OF THE DRAWINGS
For a fuller understanding of the invention, reference is had to
the following description taken in connection with the accompanying
drawings in which:
FIG. 1 is a schematic diagram of a system constructed and arranged
in accordance with a preferred embodiment of the present invention;
FIG. 2 is a high-level flow chart depicting the process flow of
a customized mortgage loan according to the present invention in
the primary and secondary mortgage markets;
FIG. 3a is a flow chart depicting a preferred embodiment of the
mortgage loan customization process according to the present invention;
FIG. 3b is a flow chart depicting a preferred process of generating
a wholesale price for a recommended customized product in the mortgage
loan customization process according to the present invention;
FIG. 4 is a flow chart depicting processes that occur downstream
of the mortgage loan customization process according to the present
invention depicted in FIG. 3; and,
FIGS. 5 9 depict exemplary user interface displays illustrating
aspects of the mortgage loan customization process according to
the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
In the primary mortgage market, lenders compete by offering and
advertising various mortgage products typically having "pre-packaged"
combinations of interest rates and points, mortgage terms, etc.
Lenders work largely within the constraints of this predetermined
range of product differentiation in combination with traditional
advertising to distinguish their mortgage products from those of
their competitors.
This "one-size-fits-all" approach to mortgage loans has
its disadvantages from the perspective of both the lender and the
borrower. Typically, if a potential borrower qualifies for a pre-packaged
mortgage loan from a prime lender, the borrower will get the loan;
if a borrower does not qualify, the prime lender cannot help the
borrower. Rejected by the prime lender, the potential borrower would
then have to go to a subprime lender and pay a significantly higher
interest rate on a mortgage loan.
The method and system according to the present invention avoids
the disadvantages and constraints to both lenders and borrowers
associated with "one-size-fits-all" mortgage products
by enabling borrowers to design a mortgage loan that is customized
to fit their individual needs and financial goals, and that can
be adapted to fit changing needs and goals. The inventive system
and process can be provided in real time over a global computer
network, such as, for example, the Internet.
Although discussed herein in the context of mortgage loans, it
should be understood that the present invention is not limited to
mortgage loans, but has application with respect to other types
of loans. It will be further understood that the present invention
is not concerned with the conventional mortgage broker model whereby
a borrower's mortgage loan application is "shopped" to
scores of lenders with whom the broker does business, and the borrower
is presented with a menu of pre-packaged mortgage products offered
by such lenders that approximate the borrower's requirements.
The system and process according to the present invention can be
implemented using a related combination of automated interfaces
and manual processes. It should be appreciated, however, that greater
use of automated processing and a wider range of product features
with multiple executions and elections is also contemplated by the
present invention.
FIG. 1 depicts a simplified schematic illustration of a system,
generally indicated as reference number 10, which includes the component
elements and means necessary to effect and control the various process
steps according to the present invention as described hereinafter.
Desirably, and where appropriate, system 10 utilizes existing computer
capabilities, both hardware and software, and electronic communications
links, for example, to display loan information to a potential borrower
and to receive and process, in real time, information input by the
potential borrower.
System 10 preferably includes a computer server 12 which includes
a processor 14. Server 12 preferably has electronic access to a
database 16 containing control files 18 also known as look-up tables.
Server 12 operates under the control of computer software to carry
out the inventive process steps described in greater detail hereinafter.
The computer software can include sets of software objects and/or
program elements collectively having the ability to execute independently
in a separate thread or logical chain of process execution, while
permitting the flow of data inputs therebetween. Each can be executed
as a separate logical server or using a separate physical device.
However, for lenders and potential borrowers, server 12 preferably
operates as a single logical server.
Server 12 is preferably electronically coupled to a remote server
20 on the lender side. Remote server 20 is preferably coupled to
a user interface 22 including conventional input and display devices
24 and 26. User interface 22 is preferably a remote interface coupled
to remote server 20 via a publicly accessible global computer network.
A common example of such a network is the Internet.
Users of the inventive system include potential borrowers (e.g.,
home buyers), loan originators, which can be mortgage companies,
savings and loans or other lending institutions. Desirably, the
loan originators also include prospects in the mortgage lending
business.
Although functionally distinct, it should be understood that the
various functions of the inventive system preferably overlap when
it comes to the flow of data inputs therethrough in order to avoid
requiring entry of the same core data more than once. For example,
information input by the potential borrower and used by system 10
to design a customized mortgage loan as described in greater detail
hereinafter can be used to populate a loan application and can be
used in pricing and underwriting the loan.
Referring now to FIG. 2, the process flow for a customized loan
according to the present invention preferably involves designing
the customized loan (step 30), originating the loan (step 32), committing
(selling) the loan in the secondary mortgage market (step 34), delivering
the loan to the secondary mortgage market purchaser (step 36) and
servicing the loan (step 38).
Although not indicated in the drawings, it should be understood
that the process flow for a customized loan according to the present
invention can also involve guaranteeing the loan. The decision by
a guarantor to guarantee a customized loan desirably would be based
on a review of the customized loan to determine if it meets the
requirements of the guarantor.
Referring now to FIG. 3a, the loan customization process according
to the present invention begins when a potential borrower contacts
a lender, e.g., online or directly (step 42). Desirably, the potential
borrower then provides borrower information and property information
for input into system 10 (step 44).
FIG. 5 shows an example user interface display used to capture
borrower information and property information in accordance with
the method of the present invention.
Referring back to FIG. 3a, at step 46 system 10 interviews the
potential borrower about the borrower's individual mortgage needs
and financial goals. Preferably, this is facilitated by soliciting
borrower responses to a pre-fill form/questionnaire. This process
can occur at an online location such as the borrower's home or at
the lender's office, and the lender can assist the borrower in this
process.
The pre-fill form/questionnaire can be provided in hard copy or
electronically. It can be supplied, for example, via stand-alone
computer software (e.g., contained on media such as a CD-ROM or
floppy disk and then stored on a hard disk), or over a telecommunications
medium (e.g., over a global computer network such as the Internet).
The pre-fill form/questionnaire can therefore be accessed on a stand-alone
computer or a computer connected to a network which can be the Internet
or a local or wide area dedicated or private network.
The inquiries made of the borrower by system 10 during the interview
(step 46) can include questions along the following lines, for example:
(i) what is the property type and value of the subject property,
(ii) what is the mortgage loan amount, (iii) how long does the borrower
plan to stay in the subject property, (iv) how often is the borrower
paid, (v) does the borrower want to match loan payments to paydays,
(vi) does the borrower have more income in certain months than others,
(vii) what payment stability does the borrower require, (viii) when
does the borrower want to pay off the mortgage, (ix) does the borrower
prefer to maximize tax deductions or to build equity, (x) does the
borrower want to miss certain loan periods each year, (xi) does
the borrower want a portable loan, and (xii) does the borrower want
an assumable loan?
Also, the borrower is given the opportunity to affirmatively request
specific mortgage product features (including, for example, an associated
home equity line of credit--"HELOC"). That is, the borrower
may pick and choose loan features to build the loan from the ground
up. Desirably, this can be accomplished by selecting such features
from the pre-fill form portion of the pre-fill form/questionnaire
(such as shown in FIG. 7).
Preferably, certain questions can ultimately be used in determining
whether the loan sought by the borrower meets eligibility guidelines
of the secondary mortgage market purchaser. The pre-fill form/questionnaire
preferably identifies loan factors and other factors that are most
important in obtaining a mortgage loan approval recommendation within
existing underwriting schemes.
FIG. 6 shows an example user interface display used to present
questions to the borrower and to capture the borrower's responses
and information concerning the borrower's financial goals in accordance
with the method of the present invention. FIG. 7 shows an example
user interface display for capturing borrower selections for specific
mortgage product features. In this example, the borrower has the
opportunity to select a myriad of loan feature combinations.
Mortgage loan features open to customization according to the inventive
method and system preferably include, but are not necessarily limited
to, interest rate, mortgage loan term, amortization term, loan payments,
portability and assumability.
The customizable interest rate feature preferably includes the
option of converting from a fixed rate to an adjustable rate, or
vice-versa, during the life of the loan. This enables borrowers
to react to changes in mortgage interest rates while avoiding the
loan refinancing process.
With the option of customizing the mortgage loan term (i.e., the
time to maturity of the loan), the borrower can select a mortgage
term preferably from 60 months to 480 months. Additionally, the
borrower can choose to change the term and recast the payments accordingly
during the life of the loan. Choosing a longer mortgage term can
allow a borrower to pay less earlier (e.g., so that the borrower
can afford a home sooner and build equity). Increasing payment frequency
later on can result in savings on interest expenses and pay off
of principal with greater speed.
Similarly, with the option of customizing the amortization term
(i.e., the amount of time, in months, required to repay the loan),
the borrower can select a term preferably from 60 months to 480
months.
It should be understood that the mortgage term and amortization
term are the same except when interest only payments is a selected
loan payments feature. For interest only loans, the mortgage term
equals the interest only period added to the amortization term.
With the interest only payments feature, the borrower can choose
to make payments of interest only (no principal) for a specified
period of time. Choosing the interest only feature can allow the
borrower to pay less earlier (e.g., so that the borrower can afford
a home sooner) and enable the borrower to invest the principal portion
to build savings. It can also permit the borrower to maximize interest
deductions over the interest only period.
The loan payments feature preferably also includes the option of
selecting curtailment recast, payment frequency and payment dates,
fewer than 12 months of payments, skipping payments and graduated
payments.
Curtailments are payments in excess of the scheduled amount. Excess
payments can be applied to the unpaid balance of the loan, thereby
shortening the term. With the curtailment recast feature, when the
pay down of the principal balance is greater than a preselected
threshold amount, the borrower has the option to have the loan payments
recast (and lowered) over the remaining term of the loan. So, for
example, if a borrower gets a big bonus check or lands a high-paying
job, with the curtailment recast feature the borrower can apply
the increased income to the mortgage to reduce monthly payments
and the overall interest expense.
With the option of customizing payment frequency, the borrower
can match payments with budget or income frequency. The borrower
can choose to make mortgage payments on a weekly, bi-weekly, semi-monthly,
monthly or quarterly schedule. This feature can be offered in combination
with any other feature with the possible exception of the payment
date on non-monthly payment frequencies.
The borrower can also select the loan payment date from any day
from the 1 st through the end of each month (on monthly payment
frequency loans).
The borrower can also opt to have fewer than 12 months of payments
per year. Preferably, payments are made on the equivalent of 10
months or 11 months. The months that payments will not be made preferably
are selected at the time the option is exercised. The reduced number
of payments will amortize the loan on an annual basis. For example,
a loan fully amortizes over a specified period (e.g., 30 years)
with a reduced number of monthly payments (i.e., 300 rather than
360). Also, it should be understood that payment frequencies other
than monthly are contemplated. The mortgagor can choose to make
44 to 48 weekly payments, 22 to 24 bi-weekly or semi-monthly payments
or 10 to 11 monthly payments. If the payment frequency is not monthly,
the payments not made should preferably fall into monthly groups
(4 weekly, 2 bi-weekly, or 2 semi-monthly payments).
The fewer than 12 months of payments feature has the benefit of
allowing the borrower to manage fluctuations in income or expenses.
The skipping payment feature also provides this benefit to the borrower.
The borrower can opt for a mortgage that permits the borrower to
skip one or more mortgage payments in a 12-month cycle. The skipped
payment reflects the full monthly payment (principal, interest,
taxes and insurance). The skipped payment can be reamortized into
the unpaid balance of the loan at the original note rate over the
remaining term of the loan. Alternatively, the borrower can simply
repay the skipped payment plus accrued interest in a subsequent
period. A loan level price adjustment or a per skip transaction
charge or a combination thereof can be assessed for the skip payment
feature.
The borrower can also select a graduated payment feature. Such
feature, characteristic of graduated payment mortgages (GPMs), permits
the borrower to begin with lower payments that rise annually over
the first 5 to 10 years, for example, and then remain constant for
the remainder of the loan. The lower initial payments enable borrowers
to qualify for a mortgage loan with less income than is needed for
a comparable level payment loan. With a 30 year term, early payments
are lower than the interest owed to the lender, so negative amortization
occurs. The payments level off at an amount higher than a borrower
would pay at the same point in a level payment loan, because negative
amortization is paid off in addition to the original amount of the
loan.
The borrower can also select a growing equity feature. Such a feature,
characteristic of growing equity mortgages (GEMs) permits rapid
payoff of the mortgage loan. With this feature the borrower starts
paying the same amount as for a level-payment, fixed-rate mortgage
at the same rate. Increases in payments are used entirely to reduce
the balance owed. Because of the increased payments, the borrower
can pay off a 30 year loan in 15 to 20 years, possibly less, for
example. This feature has the benefit of allowing the borrower to
build equity to, for example, save for a future life event (e.g.,
college expenses, home improvements).
In addition to the ability to customize interest rate, loan term,
amortization term, and loan payments, the borrower can desirably
choose features of portability and assumability. A portable mortgage
permits the borrower to transfer the mortgage to a new property.
An assumable mortgage permits a new purchaser of the mortgage property
to assume the original mortgagor's mortgage, if the new borrower
qualifies for the loan.
It should be understood that other loan features can be available
for customization according to the system and process of the present
invention. These can include, without limitation, features related
to preserving loan collateral, as well as protecting against credit
impairment and the impact of unanticipated life events.
For example, a mortgage loan can be customized to include a managed
home maintenance plan feature. Such a feature provides the borrower
with coverage for the cost of qualifying home repairs over the term
of the mortgage. This feature protects the borrower against the
financial uncertainty and risk associated with costly and often
unexpected home repairs. Moreover, it provides the borrower with
the incentive and the means to maintain the value of the loan collateral.
Also, the loan can be customized to include a feature that covers
the borrower for a missed loan payment. With this feature, a payment
missed by the borrower is made by a source other than the borrower.
This allows the borrower to avoid defaulting on the loan and the
concomitant adverse impact on the borrower's credit history. Such
a feature can apply in situations where (i) the costs associated
with an unanticipated life event (e.g., death, disability, divorce,
unemployment) prevent the borrower from making the loan payment,
or (ii) the borrower inadvertently misses making the payment even
though the borrower has the resources to make the payment.
It should be understood that a loan level price adjustment or a
per transaction charge or a combination thereof can be assessed
for features open to customization according to the present invention.
It should also be understood that features open to customization
may be selected or adopted prior to loan origination, after the
loan has closed, or even after a default.
Furthermore, it should be appreciated that loan features open to
customization according to the system and process of the present
invention can be selected as an option that, at the borrower's discretion,
may or may not be exercised during the loan term. For example, a
loan may be customized to give the borrower the option of switching
from payments of principal and interest to interest only payments
during the loan term.
Referring back to FIG. 3a, based on the responses and mortgage
product feature specifications provided by the borrower, system
10 requests a product recommendation from the secondary mortgage
market participant (step 48). In step 50, the secondary mortgage
market participant determines one or more product recommendations
in response that are customized to meet the goals and requirements
communicated by the borrower.
In one embodiment of the present invention, database 20 of system
10 can store a matrix of all possible combinations of question responses,
borrower requests, goal sets and product features and associated
product recommendations to generate the customized mortgage product
recommendation(s) based on the goals and requirements communicated
by the borrower.
It should be understood that the mortgage product recommendation(s)
determined by system 10 represent loans and combinations of loan
features fashioned specifically for the borrower taking into account
the individual borrower's communicated goals and requirements. They
are not pre-packaged mortgage products offered by the lender (unless
a product recommendation happens to be the equivalent of a pre-packaged
product which meets the individual needs of the borrower). Desirably,
the customized product recommendation(s) will enable the lender
to create product/market uniqueness to retain competitive advantage.
At decision 52, if a customized mortgage product recommendation
cannot be determined based on the information provided by the borrower,
the borrower is preferably given the opportunity at decision 54
to restart the process (by revisiting step 46) with revised information,
goals and/or requirements or end the process (event 64).
If a customized mortgage product recommendation(s) is determined
(decision 52), the secondary mortgage market participant preferably
calculates a wholesale rate associated with each mortgage product
recommendation consisting of a current ("live") base portfolio
yield plus mortgage product feature-based adjustments to such yield
and any applicable fees (step 56). The wholesale rate is the rate
required by the secondary mortgage market participant to take the
loan commitment. The wholesale rate is preferably integrated with
the lender's retail market strategy.
Referring to FIG. 3b, the pricing for mortgage product features
available for customization according to the method and system of
the present invention is preferably initially based on conventional
fixed rate products. In determining wholesale price, the secondary
mortgage market participant can determine required net yield (RNY)
based on current "live" pricing for standard fixed rate
mortgage products by term (e.g., a 30 year fixed rate mortgage)
and for interest only loans (step 56a). Because these standard fixed
rate products or base products are rated "live," their
rates change as the market dictates. Because interest rates can
fluctuate rapidly, it is desirable to re-post rates based upon current
market conditions.
An appropriate adjustment in basis points is then added to the
RNY for any selected mortgage product feature(s) and associated
fees (step 56b). Each mortgage product feature is preferably priced
at an appropriate preselected (RNY) adjustment.
Desirably, adjustment factors are calculated for more than one
feature without making the par yield go too high. Since many of
the customized features change the effective maturity of the loan,
a rules-based pricing approach involving the computation of an effective
maturity is preferred. The rules-based pricing methodology preferably
involves a table containing rate (or yield) adjustments for each
feature and maturity. The rules then specify how different elements
of the table are added together to arrive at the rate adjustment
for a combination of loan features. An example of such a table is
shown below. Each element is the rate adjustment made compared to
a "standard" fixed rate loan with the same maturity and
monthly payment frequency rated at par. For simplicity, the amortization
term is assumed to be equal to the mortgage term, and the curtailment
recast option is left out.
TABLE-US-00001 TABLE 1 Example Rate Adjustment Table Loan Loan
Term (in years) Feature Low 10 15 20 30 High Bi-weekly Pay 0 0 0
0 -01 bp -02 bp Weekly Pay 0 0 0 0 0 0 10/20 yr. 0 0 0 0 22 bp 0
Interest Only 15/15 yr. 0 0 0 0 25 bp 0 Interest Only Fewer Than
0 0 0 0 0 0 12 Payments
The two columns "Low" and "High" reflect the
fact that the effective maturity of a combination of loan features
can be higher or lower than the stated maturity. During the application
of the pricing rules a "maturity index" preferably indicates
the column to use. Within the "High" and "Low"
boundaries, one can move right or left in the table by adding to
or subtracting from the maturity index.
"Live" RNYs and feature-level rate adjustments are preferably
stored in and can be accessed from look-up table 18 in database
16. It will be appreciated that access to current secondary mortgage
market participant rates is preferably required at three different
points in the process flow of a customized mortgage in the primary
and secondary mortgage markets: (i) when the borrower is designing
a loan, (ii) when the lender commits to sell the loan to the secondary
mortgage market purchaser, and (iii) when the secondary mortgage
market purchaser actually acquires the loan.
The product recommendation(s) and associated wholesale pricing
information (generated in step 56c) are provided to the lender (FIG.
3a, step 58). Referring to FIG. 3a, the lender then provides the
product recommendation(s) and associated retail pricing to the borrower
for consideration (step 60). The retail price is the "rate"
the borrower will pay the lender for the loan. The retail price
is typically the wholesale rate plus some add-on for the lender.
This "rate" can be either in the form of a fee (e.g.,
points) or rolled into the interest rate for the mortgage loan.
FIG. 8 shows an example of a user interface display used to present
customized mortgage product recommendations to the potential borrowers
according to the present invention.
Referring back to FIGS. 3a and 3b, each of the steps 42 64 is preferably
executed by software resident on server 12.
Referring to FIG. 3a, if the borrower wishes to proceed with a
customized mortgage product recommended via the lender (decision
62), the lender preferably implements its loan origination process
to handle the application, underwriting and closing of the loan
(FIG. 4 at A); otherwise, the borrower is preferably given the opportunity
to restart the process at step 46 with revised information, goals
and/or requirements (decision 54), or end the process (event 64).
Desirably, the lender can assign an identifier or code to each
selected customized product to identify such products in downstream
processes (including the processes depicted in FIG. 4).
FIG. 9 shows an example user interface display used to inform potential
borrowers about the mortgage product customization process according
to the present invention.
Referring now to FIG. 4, the processes that preferably occur downstream
of the process for designing a customized loan according to the
method and system of the present invention are shown. These downstream
processes include loan origination, commitment, delivery and servicing.
The loan origination process begins at step 66 when a borrower
decides to apply for a recommended customized mortgage product according
to the present invention.
Desirably, information provided by the borrower is verified (step
68)--e.g., the address of the real property that is intended to
underlie the loan being applied for ("address scrubbing")
and the credit worthiness of the borrower (e.g., through a credit
report on the borrower).
When a borrower selects a customized mortgage product and applies
for the customized loan, the lender will preferably lock in the
loan rate and term (step 70). The lender can then pursue a negotiated
commitment to purchase the loan from the secondary mortgage market
participant at either a loan level or aggregate level (step 72).
It should be appreciated that this process can be an electronic
commitment, streamlining the process and lowering costs to the borrower,
lender and secondary mortgage market participant. The secondary
mortgage market participant can commit to customized loans that
meet preselected eligibility requirements of the secondary mortgage
market purchaser (which requirements can be stored in database 16)
and that comply with the customized product recommendation of the
secondary mortgage market purchaser.
After the loan is closed (at step 74), the lender can sell the
loan to the secondary mortgage market purchaser in the secondary
market pursuant to the negotiated commitment (step 76). Purchased
loans are then delivered (preferably, electronically) to the secondary
mortgage market purchaser (step 78). Desirably, all delivery documentation
is verified (step 80).
When the loan is delivered to the secondary mortgage market participant,
the proceeds that are owed the lender are calculated (step 82).
This calculation is based on the customized RNY on the commitment
plus any feature adjustments that apply to the loan as it is delivered.
Look-up table 18 of database 16 can be accessed for current feature-level
pricing.
After a customized loan is delivered to the secondary mortgage
market purchaser, the loan is serviced (step 84). That is, mortgage
payments are collected from the borrower and applicable escrow accounts
are maintained, preferably by an entity hired to service the loan
("servicer").
The servicer will preferably report all loan-level activity on
customized loans (including any changes in status of a customized
loan, e.g., mortgage rate or other modifications) to the secondary
mortgage market participant.
Preferably, mortgage loan customization according to the present
invention is rules-based. That is, the secondary mortgage market
participant preferably sets rules for the selection and combination
of the mortgage loan product features open to customization according
to the method and system of the present invention. Such rules can
be stored in database 16.
For example, for customizable mortgage loan features concerning
payment frequency, the secondary mortgage market participant can
require that (i) all loans will be monthly accrual loans, (ii) monthly
payments (12 payments per year), bi-weekly payments (26 or 27 payments),
weekly payments (52 or 53 payments) and quarterly (4 payments per
year) will be supported, (iii) the borrower will have the option
of selecting the payment frequency at the start of the loan, but
the payment frequency cannot change during the life of the loan,
(iv) loans will be considered delinquent when a scheduled payment
is not made by the due date, (v) payments should be electronically
drafted from the borrower's account for weekly and bi-weekly payments.
Additional rules may concern the amortization/payment calculation
of principal and interest for various payment frequencies. For example,
the secondary mortgage market participant may require that (i) bi-weekly
payments of principal and interest are calculated as 50% of the
monthly payment, (ii) weekly payments are calculated as 25% of the
monthly payment, (iii) all extra payments are treated as principal
curtailments.
Regarding the mortgage term and amortization term (which is the
same except when interest only payments is a feature of the loan),
the secondary mortgage market participant can, for example, require
that these borrower-selected terms range from 60 months to 480 months,
and that once the amortization term is chosen, it will not change
throughout the life of the loan.
For the curtailment recast mortgage product feature, the secondary
mortgage market participant can, for example, provide that there
is no threshold that must be met in order for the loan to be re-amortized
and that a servicing fee will be charged for each recast.
For the interest only payment feature, the following rules can,
for example, be set by the secondary mortgage market participant:
(i) an interest only period can be scheduled only at origination
for either 10 or 15 years starting with the first payment, (ii)
only one interest only period will be allowed during the life of
the loan, (iii) any curtailments during the interest only period
are applied to the unpaid principal balance and result in a recast
payment with no fee being charged during the interest only period
for recasts. Alternatively, rules can provide, for example, that
the interest only payment feature can take effect within the loan
term.
For the feature of fewer than 12 months of payments, the secondary
mortgage market participant can, for example, provide that (i) the
borrower has the option of selecting the feature at the start of
the loan, (ii) the borrower will be able to select 1 or 2 months
to be non-payment months, (iii) once decided, the non-payment month(s)
will not change during the life of the loan, (iv) the first and
second payment months cannot be scheduled non-payment months in
the first year, but in subsequent years they can be.
Rules can also be set to govern the ability to combine product
features in a mortgage loan customized according to the method and
system of the present invention. For example, secondary mortgage
market participant rules can provide that a mortgage product having
a selected term, a weekly payment frequency, an interest only payment
feature, and a curtailment recast feature, cannot be combined with
the fewer than 12 months of payments feature as that feature is
susceptible of being combined with only a mortgage product having
a monthly payment frequency.
Some representative practical examples highlighting the benefits
of the method and system for customizing mortgage loans according
to the present invention are discussed below.
First time homebuyers are concerned about financing the education
of their child 15 years hence, but also need to keep their mortgage
payments as low as possible today as they start to advance in their
careers. The borrowers access system 10 of the present invention
via the Internet website of the secondary mortgage market participant's
lender partner. From a system pre-fill form/questionnaire designed
to solicit information concerning the goals of the borrowers, the
borrowers select "lowest payments" as their primary goal
and "finance future life events" (i.e., their child's
college education) as another goal. When prompted by the system,
the borrowers also indicate that the expected life event is in 6+
years and is expected to be a significant amount. The system returns
the following customized mortgage recommendations: (i) a GPM starting
at the interest only rate for the first 2 years, and payments increasing
6% annually for 7 years, (ii) a monthly GPM with a starting payment
rate of 1% less than the note rate with annul payment increases
of 4%, (iii) a bi-weekly loan based on 50% of a conventional 30
year payment, and (iv) a 25 year fixed rate mortgage. The borrowers
are also given the opportunity to add the following features to
their mortgage: (i) selected payment date, (ii) fixed rate convertible
option, (iii) portable option, (iv) assumable option, and (v) home
equity line of credit.
An investment banker enters the mortgage business in conjunction
with third-party service providers by offering a financial planning
mortgage that allows borrowers to pay $100.00 extra per mortgage
payment (bi-weekly) for investment in a mutual fund account. Once
the balance in the mutual fund account (adjusted for expected capital
gains taxes) is equal to or greater than the loan, the borrower
is given the option to sell the mutual fund and pay off the loan.
This allows the borrower to pay the loan off more rapidly, especially
in a continued bull market.
A borrower wants to pay off his loan aggressively. The borrower
receives compensation in the form of commission checks paid on the
first Monday following the third Wednesday of the month. The borrower
meets with a lender and, utilizing system 10 of the present invention,
selects a 1 year ARM, 2% margin, no annual cap, 7% lifetime cap,
starting at 5.25%, but initial payments based on a 7% payment rate
on a 10 year term. Loan payments are due on the 23rd of the month
with a 15 day grace period. This combination is designed to reduce
total interest paid. Furthermore, the quick amortization in the
first year almost guarantees that the lack of annual interest rate
caps will not negatively impact the borrower's payments.
A borrower wants a loan that will change as the borrower's life
changes. The borrower enters information into system 10 of the present
invention via the Internet website of the secondary mortgage market
participant's lender partner. The borrower selects a portable loan
that will change throughout the borrower's life; $125,000 30 yr.
fixed with 80% loan to asset value (LTV) and a pledged asset (the
borrower's 401K) of $46,875 (30%) reducing the secondary mortgage
market participant's risk to a 50% LTV. The loan is set up as a
GEM with payments increasing 2% each year (7.125%, 30 yr. payment
term). Twelve years later when the borrower's child is entering
college, the loan will switch to a 5 year reverse mortgage paying
out $1,200 per month to help with tuition, room and board. Finally
the loan will switch to a 1 year ARM with a 20 year term so that
the borrower can pay off the borrower's home by the time the borrower
turns age 65.
In accordance with the foregoing, the present invention provides
an online system and process that permits a lender to offer a borrowers
a mortgage loan product built from the ground up based on the borrower's
individual needs, specifications and goals. It should be appreciated
that the inventive system and process allows lenders to offer customized
loan products on a mass produced basis.
In so far as embodiments of the invention described herein can
be implemented, at least in part, using software controlled programmable
processing devices, such as a computer system, it will be appreciated
that one or more computer programs for configuring such programmable
devices or system of devices to implement the foregoing described
methods are to be considered an aspect of the present invention.
The computer programs can be embodied as source code and undergo
compilation for implementation on processing devices or a system
of devices, or can be embodied as object code, for example. Those
of ordinary skill will readily understand that the term computer
in its most general sense encompasses programmable devices such
as those referred to above, and data processing apparatus, computer
systems and the like.
Preferably, the computer programs are stored on carrier media in
machine or device readable form, for example in solid-state memory
or magnetic memory such as disk or tape, and processing devices
utilize the programs or parts thereof to configure themselves for
operation. The computer programs can be supplied from remote sources
embodied in communications media, such as electronic signals, radio
frequency carrier waves, optical carrier waves and the like. Such
carrier media are also contemplated as aspects of the present invention.
It will thus be seen that the objects set forth above, among those
made apparent from the preceding description, are efficiently attained
and, since certain changes can be made in carrying out the above
method and in the constructions set forth for the system without
departing from the spirit and scope of the invention, it is intended
that all matter contained in the above description and shown in
the accompanying drawings shall be interpreted as illustrative and
not in a limiting sense.
It is also to be understood that the following claims are intended
to cover all of the generic and specific features of the invention
herein described, and all statements of the scope of the invention
which, as a matter of language, might be said to fall therebetween.
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