Home equity protection contracts and method for trading them

• US 20060080228A1
• Filed: 09/09/2004
• Published: 04/13/2006
• Est. Priority Date: 09/09/2004
• Status: Abandoned Application

• Current Assignee: DRI (S&P Global Inc.)
• Original Assignee: DRI (S&P Global Inc.)
• Inventors: McGill, Bradley J., McCormick, C. Todd IV
• Application Number:
  US10/938,743
• Publication Number:
  US 20060080228A1
• Time in Patent Office: Days
• US Class Current: 705/38
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof

Abstract

A method for creating, marketing, and selling a contractual instrument for protecting a value characteristic of a homeowner'"'"'s residential real estate property is provided according to the invention. The derivative instrument can be created in the form of a simple contract like a “Home Equity Protection Product” sold to the homeowner by a mortgage originator or P&C insurer. It provides a cash-settled payout to the buyer at a predetermined expiration date defined by the contract correlated to, e.g., the home'"'"'s market value or home equity value, and a reduction in value of a benchmark real estate index between, e.g., the contract purchase date and the expiration date. The Home Equity Protection Contracts of the present invention may be securitized much like mortgage-backed securities on a secondary and sold to institutional investors to permit them to speculate in the value of residential real estate in order to broaden their investment portfolios.

Claims

1. A method for creating and selling a financial security for protecting a value characteristic of a homeowner'"'"'s residential real estate property, comprising:

(a) establishing or accessing a benchmark index that characterizes the value of a plurality of residential real estate properties of the same type as the homeowner'"'"'s property;

(b) establishing a financial security based upon the benchmark index for that particular type of real estate property having a first value at a first time, the financial security having an expiration date, and defining a cash-settled payout correlated to the value characteristic of the homeowner'"'"'s property at the first time, and a reduction in value of the index between the first time and the expiration date;

(c) selling the financial security to the homeowner in return for a purchase price;

(d) securitizing the financial security along with other similar financial securities sold to other homeowners on a secondary market for purchase by buyers speculating in the value of residential real estate; and

(e) wherein the homeowner will receive the cash-settled payout on the expiration date if the value of the benchmark index has decreased between the first time and the expiration date.

2. The method of claim 1, wherein the cash-settled payout is further based upon the occurrence between the first time and the expiration date of an amount of reduction in value of the benchmark index beyond a predetermined minimum amount specified in the contract.

3. The method of claim 1, wherein the cash-settled payout is capped at a predetermined amount specified in the contract.

4. The method of claim 1, wherein the value characteristic of the homeowner'"'"'s property is its market value.

5. The method of claim 1, wherein the value characteristic of the homeowner'"'"'s property is the amount of home equity in such property.

6. The method of claim 1, wherein the property type is further defined by a geographic region.

7. The method of claim 1, wherein the benchmark index is the American Housing Survey compiled and issued by HUD.

8. The method of claim 1, wherein the property type is houses, townhouses, condominiums, owned apartments, or co-ops.

9. The method of claim 1, wherein the contractual instrument is sold to the homeowner by a mortgage originator.

10. The method of claim 1, wherein the contractual instrument is sold to the homeowner by a P&

C insurer.