Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-03-18
2001-05-15
Stamber, Eric W. (Department: 2765)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S03600T, C705S038000
Reexamination Certificate
active
06233566
ABSTRACT:
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relates generally to a centralized exchange system for creating a marketplace to buy and sell financial products, and more particularly to a centralized exchange system for the trading loans.
2. Related Art
Over the past several years, there has been an explosion of computers, and thus people, connected to the global Internet and the World-Wide Web (WWW). This increase of connectivity has allowed computer users to access various types of information, disseminate information, and be exposed to electronic commerce activities, all with a great degree of freedom. Electronic commerce includes large corporations, small businesses, individual entrepreneurs, organizations, and the like, who offer their information, products, and/or services to people all over the world via the Internet.
Financial products are one of the types of products available through electronic commerce activities. Consumer loan products, one example of financial products available through electronic commerce, are typically divided into two categories—conforming (or conventional) loans and non-conforming (or non-conventional) loans. Conforming loans are low risk loans and include traditional primary residence mortgage loans to consumers with good credit histories and loans to consumers who qualify under certain government-backed loan programs (e.g., Federal Housing Administration (FHA) or the Veterans Administration (VA)).
In contrast to conforming loans, non-conforming loans pose a higher risk for lenders than conforming loans. Non-conforming loans include loans to consumers with bad credit (e.g., due to bankruptcy or foreclosure), non-income verification loans (e.g., loans to consumers who have been self-employed for less than 2 years), loans for non-owner occupied properties, loans for non-conventional properties, some commercial (business) loans, and High-Loan-To-Value (HLTV) loans.
For example, HLTV loans are typically obtained by consumers, who by using equity in their homes as collateral, consolidate other (e.g., credit card) debt. These types of loans involve a lender who loans a consumer an amount of money in excess of 100% of the consumer's equity in their home. For example, an “HLTV 125” loan refers to consumer who obtains a loan for 125% of the value of their home.
In more detail, an “HTLV 125” loan would work as follows. A consumer who owns a home valued at $100,000, and has a first mortgage on that home for 80% of the value (i.e., $80,000), would have $20,000 in equity. If the consumer has credit card debts and wanted to borrow money to consolidate these debts, a lender may offer the consumer an HLTV loan. In one scenario, the consumer may be able to obtain a loan for the $20,000 equity in their home, and borrow against an additional 25% of the value of the home (i.e., another $25,000) for a total loan of $45,000. As such, there would now be loans covering 125% of the value of the consumer's home.
Under the current tax laws, this type of loan provides the consumer (i.e., borrower) with a tax advantage because a certain amount of the interest paid on this loan can be deducted on the borrower's income tax returns. In contrast, any interest paid on credit card debt cannot be deducted. Further, the interest rate that a borrower may be able to obtain for an HLTV loan is often less than the interest rate charged by most credit card companies. Thus, consolidating by obtaining an HTLV loan, lowers the borrower's monthly payments and allows the borrower to repay debts owed more quickly. As such, these types of loans are often attractive to consumers.
Non-conforming loans generally are also attractive to lenders because the market will often allow lenders to charge a higher interest rate than on a conventional first mortgage loan (although this interests rate is still lower than that charged by credit card companies). Because lenders are offering the borrower a loan for more than the value of the collateral (e.g., the borrower's home), however, there is a certain amount of risk involved in making such loans. As such, lenders have developed certain rules (based on criteria, such as underwriting criteria) to minimize their risks (i.e., exposure) when making non-conforming loans.
An example criteria used by lenders include identifying potential borrowers in a certain income bracket. This income bracket must be high enough so that there is small likelihood of default, but not so high that the borrower is likely to prepay the loan—thereby decreasing the amount of interest collected by the lender over the life of the loan.
Another criteria often considered by lenders making non-conforming loans is the borrower's credit rating. A consumer's credit rating is an indication of their ability to pay outstanding debts. Credit rating companies, such as Trans Union Corporation of Chicago, Ill., Experian, Inc. (formerly TRW) of Orange, Calif., and Equifax, Inc. of Atlanta, Ga., collect certain information on individual consumers and assign each a credit rating based on this information.
One method of obtaining a credit rating is known as a “FICO score” which is based on a mathematical model developed by Fair, Isaac, and Company, Inc. of San Rafael, Calif. A FICO score is based on many factors including how a consumer pays their bills, outstanding debt, how long a consumer has had credit, types of credit a consumer has, and how many times a consumer has recently applied for or opened new lines of credit.
Non-conforming loans are typically made to people with relative high FICO scores, known as “A” borrowers. “A” borrowers usually either have some equity in their homes but have a large amount of debt, or they have little or no equity in their homes. “A” borrowers have credit ratings which indicate that they will be able to repay a loan.
Loans can also be extended to “sub-prime” borrowers—individuals with “B” or “C” credit ratings. These subprime borrowers have relatively lower credit scores. Loans in this case may be the borrower's first mortgage on a home, e.g., for which the borrower has a risky credit rating, but they have collateral, such as a home, which has not been previously mortgaged. Similarly, loans can also be extended to borrowers who are seeking a “jumbo” loan—a loan of $225,000 or more.
All of these types of loans, because of the various risks associated with each, command a higher interest rate than conventional loans.
Referring to
FIG. 1
, a time line of a typical loan life cycle
100
is shown. The first phase in the loan life cycle
100
is a marketing phase
104
. In marketing phase
104
, marketing companies target certain potential borrowers to receive advertisements offering loans. For example, potential borrowers may be targeted by geographic region (e.g., by zip code or area code). This advertising can be distributed through many sources, such as via telephone advertising campaigns, via mass mailings, or via the Internet.
The second phase in the loan life cycle
100
is a loan origination phase
108
. In loan origination phase
108
, the potential borrower contacts the lender (e.g., mortgage bank), or a broker working with a lender, by phone or electronic mail, to request a loan. Usually, this first contact between the potential borrower and the lender is telephonic, as call centers are typically set up to handle responses to the advertising campaigns. After being switched away from the call intake portion of the call center, certain information is collected from the consumer by a loan agent. The loan agent also works with the potential borrower to agree on a loan amount, interest, points, duration or term of the loan and other features of the loan. The loan agent then sends this information to a loan processor and a loan underwriter for approval. The loan processor processes the paperwork necessary for completing the loan and the underwriter makes sure the underwriting guidelines are met, and validates the interest rate and points assigned by the loan agent. If these validated terms ar
Levine David A.
Levine Monica L.
Minton Gabriel D.
Poletti Jon
Sondregger Dean
Kanof Pedro
Stamber Eric W.
Sterne Kessler Goldstein & Fox P.L.L.C.
Ultraprise Corporation
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