Cash flow system and method

• US 20070255648A1
• Filed: 04/11/2007
• Published: 11/01/2007
• Est. Priority Date: 12/30/2002
• Status: Abandoned Application

• Current Assignee: F Whipple, Timothy Mcluckie
• Original Assignee: F Whipple, Timothy Mcluckie
• Inventors: Whipple, F., McLuckie, Timothy
• Application Number:
  US11/786,456
• Publication Number:
  US 20070255648A1
• 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 comprises decomposing each of a plurality of home mortgage loans into a plurality of sub-loan level cash flows; and repackaging the plurality of sub-loan level cash flows to form a plurality of financial assets backed by the plurality of sub-loan level cash flows.

Claims

1. A computer implemented method of creating and maintaining financial assets which accentuate different types of sub-loan level risk associated with a plurality of home mortgage loans and which are configured to operate as hedges against risks that oppose the different types of sub-loan level risk, comprising:

receiving information in a computer system concerning the plurality of home mortgage loans, each of the plurality of home mortgage loans being sensitive to the different types of sub-loan level risk, each of the plurality of home mortgage loans comprising a plurality of sub-loan level cash flows, wherein, for each of the plurality of home mortgage loans, individual sub-loan level cash flows exhibit heightened sensitivity to corresponding different types of sub-loan level risk relative to the sensitivity to the different types of sub-loan level risk exhibited by the respective home mortgage loan as a whole;

decomposing each of the plurality of home mortgage loans into the plurality of sub-loan level cash flows; and

then

repackaging the plurality of sub-loan level cash flows to form the a plurality of financial assets, including backed by the plurality of sub-loan level cash flows; and

selecting a sub-combination of the plurality of sub-loan level cash flows, the sub-combination of sub-loan level cash flows comprising sub-loan level cash flows from across the plurality of home mortgage loans, and the sub-combination of sub-loan level cash flows exhibiting heightened sensitivity to at least one of the different types of sub-loan level risk in accordance with the heightened sensitivity to the at least one of the different types of sub-loan level risk exhibited by the sub-loan level cash flows that form the sub combination of sub-loan level cash flows,

packaging the sub-combination of sub-loan level cash flows to create one of the financial assets, the financial asset that is created accentuating the at least one of the different types of sub-loan level risk in accordance with the heightened sensitivity exhibited by the sub-combination of sub-loan level cash flows, thereby configuring the financial asset to operate as a hedge against a risk that opposes the at least one of the different types of sub-loan level risk, and

repeating the selecting and packaging steps to create additional financial assets, the additional financial assets including different financial assets which accentuate other different types of sub-loan level risk and which exhibit heightened sensitivity to the other different types of sub-loan level risk as compared to the sensitivity to the other different types of sub-loan level risk exhibited by the plurality of home mortgage loans as a whole, thereby configuring the additional financial assets to operate as hedges against other risks that oppose the other different types of sub-loan level risk;

storing information concerning the plurality of financial assets in a data storage system of a computer system; and

selling the financial assets to different investors in the capital markets, thereby permitting the different investors to hedge against the risks that oppose the different types of sub-loan level risk.

2. A computer implemented method according to claim 1, wherein the plurality of sub-loan level cash flows include a first plurality of sub-loan level cash flows derived from principal payments of a borrower, a second plurality of sub-loan level cash flows derived from interest payments of a borrower, and a third plurality of sub-loan level cash flows derived from borrower-paid fees.

3. A computer implemented method according to claim 2,

wherein the plurality of sub loan level cash flows include a sub-loan cash flow that is a negative cash flow from a perspective of one or more of the investors in the owners of the plurality of financial assets, the negative sub-loan cash flow being associated with expenses incurred in connection with the respective loan;

and

wherein the financial assets include a financial asset which accentuates the sub-loan level risks associated with the negative cash flow.

4. A computer implemented method according to claim 2, wherein the decomposing step is performed such that substantially all sources of potential revenue and expenses for each of the plurality of loans are associated with a corresponding one of the plurality of sub-loan level cash flows.

5. A computer implemented method according to claim 2,

wherein the second plurality of sub-loan level cash flows derived from interest payments include a cash flow associated with servicing fees, a cash flow associated with guarantee fees, and a cash flow associated with pass through interest;

and

wherein the financial assets include a financial asset which accentuates the sub-loan level risks associated with the cash flows associated with the servicing fees, a financial asset which accentuates the sub-loan level risks associated with the cash flows associated with the guarantee fees, and a financial asset which accentuates the sub-loan level risks associated with the cash flows associated with the pass through interest.

6. A computer implemented method according to claim 5,

wherein the third plurality of sub loan level cash flows derived from borrower-paid fees include a cash flow associated with late fees and a cash flow associated with prepayment penalty fees;

and

wherein the financial assets include financial assets which accentuate the sub-loan level risks associated with the cash flows associated with the late fees and financial assets which accentuate the sub-loan level risks associated with the cash flows associated with the prepayment penalty fees.

7. A computer implemented method according to claim 1, wherein the information pertains to a mapping relationship between the plurality of financial assets and the plurality of sub-loan level cash flows, the mapping relationship describing a manner in which cash flows flowing into each of the plurality of financial assets are traceable back to the plurality of sub-loan level cash flows.

8. A computer implemented method according to claim 7, further comprising displaying the information pertaining to the mapping relationship to a human operator, the displaying step being performed by a computer-implemented cash flow repackaging tool used by the human operator and which at least in part performs the repackaging step.

9. A computer implemented method according to claim 7,

wherein the decomposing and repackaging steps define a first layer of cash flow decomposition/repackaging;

wherein the decomposing and repackaging steps are repeated to define at least one additional layer of cash flow decomposition/repackaging; and

wherein, during the storing step, information pertaining to the first layer and the at least one additional layer of cash flow decomposition/repackaging is stored in the data storage system.

10. A computer implemented method according to claim 1, further comprising:

decomposing each of a plurality of home mortgage loans into a plurality of sub-loan level cash flows; and

then repackaging the plurality of sub-loan level cash flows to form a plurality of financial assets backed by the plurality of sub-loan level cash flows;

predicting financial performance of the plurality of sub-loan level cash flows and displaying a graphical representation of the predicted financial performance to a human operator, wherein the predicting and displaying steps being performed by computer-implemented financial engineering tools in response to operator inputs provided by the human operator.

11. A computer implemented method according to claim 1, further comprising analyzing financial risk associated with the plurality of sub-loan level cash flows and displaying a graphical representation of the financial risk to a human operator, the analyzing and displaying steps being performed by computer-implemented financial engineering tools in response to operator inputs provided by the human operator.

12. A computer implemented method according to claim 1, wherein at least one of the plurality of financial assets is a debt instrument configured for sale to an investor one of the investors in the capital markets, the debt instrument being configured such that the investor is paid with cash flows derived from principal payments, and the debt instrument including a credit loss trigger such that the investor is no longer paid if credit losses exceed a certain level.

13. A computer implemented method according to claim 1, wherein at least one of the plurality of financial assets is a debt instrument structured so as to accentuate credit risk of borrowers associated with the plurality of loans.

14. A computer implemented method according to claim 1, wherein at least one of the plurality of financial assets is a debt instrument structured so as to deaccentuate credit risk of borrowers associated with the plurality of loans.

15. A computer implemented method according to claim 1, wherein at least one of the plurality of financial assets is a financial instrument backed by borrower paid borrower paid fees and not by principal or interest, and wherein the method further comprises paying the investor in an owner of the financial instrument with funds derived from proceeds of the borrower paid borrower paid fees.

16. A computer implemented method according to claim 1, further comprising adding an additional sub-loan level cash flow to a respective one of the home mortgage loans during a term of the respective home mortgage loan, the additional sub-loan level cash flow corresponding to an additional line of credit extended to a borrower associated with the respective home mortgage loan.

17. A computer implemented method according to claim 1, wherein the decomposing and repackaging steps are performed by a computer-implemented cash flow decomposition/repackaging tool.

18. A computer implemented method according to claim 1, wherein the plurality of sub-loan level cash flows include a plurality of sub-loan level cash flows derived from borrower-paid fees which do not vary as a function of interest paid by the borrower, and wherein the financial assets include method further comprises selling a financial asset backed only by the borrower paid borrower paid fees to an investor.

19. A computer implemented method according to claim 1, wherein the financial assets include financial assets that are backed only by borrower-paid fees and not by principal or interest cash flows for the plurality of home mortgage loans, and wherein the method further comprises selling the financial assets backed only by borrower-paid fees to investors.

20. A computer implemented method according to claim 1, wherein the plurality of financial assets include financial assets that are backed only by cash flows other than principal or interest cash flows for the plurality of home mortgage loans, and wherein the decomposition/repackaging tool is configured to generate different types of financial assets backed by the cash flows other than the principal or interest cash flows, including debt instruments, options, and swaps.

26. A computer implemented computer-implemented method according to claim 1, wherein comprising:

decomposing each of a plurality of home mortgage loans into a plurality of sub-loan level cash flows using a first computer implemented engine, the plurality of sub-loan level cash flows including a first plurality of sub-loan level cash flows derived from principal payments of a borrower, a second plurality of sub-loan level cash flows derived from interest payments of a borrower, a third plurality of sub-loan level cash flows derived from borrower-paid fees, and at least one additional sub-loan level cash flow associated with loan expenses, the first, second and third pluralities of sub-loan level cash flows being positive cash flows and the at least one additional sub-loan level cash flow being a negative cash flow from the perspective of one or more owners of the plurality of financial assets;

repackaging the plurality of sub-loan level cash flows to form a plurality of financial assets backed by the plurality of sub-loan level cash flows, the repackaging step is being performed without securitizing the plurality of loans

displaying and storing information pertaining to a mapping relationship between the plurality of financial assets and the plurality of sub-loan level cash flows, the mapping relationship describing a manner in which cash flows flowing into each of the plurality of financial assets are traceable back to the plurality of sub-loan level cash flows, the displaying step being performed by a computer-implemented cash flow repackaging tool responsive to operator inputs from a human operator;

processing loan payment information using a second computer implemented engine in accordance with the stored information;

generating information regarding investment proceeds due to the one or more owners of the plurality of financial assets; and

generating risk analysis information.

21. A computer-implemented method of creating and maintaining financial assets which accentuate different types of sub-loan level risk associated with a plurality of home mortgage loans and which are configured to operate as hedges against risks that oppose the different types of sub-loan level risk, the financial assets being sold to different investors in the capital markets, the method comprising:

(A) receiving information in a computer system concerning the plurality of home mortgage loans, each of the plurality of home mortgage loans being sensitive to the different types of sub-loan level risk, each of the plurality of home mortgage loans comprising a plurality of sub-loan level cash flows, wherein, for each of the plurality of home mortgage loans, individual sub-loan level cash flows exhibit heightened sensitivity to corresponding different types of sub-loan level risk relative to the sensitivity to the different types of sub loan level risk exhibited by the respective home mortgage loan as a whole;

(B) decomposing each of the plurality of home mortgage loans into the plurality of sub-loan level cash flows;

(C) repackaging the plurality of sub-loan level cash flows to form the financial assets, including

(1) selecting a sub-combination of the plurality of sub-loan level cash flows, the sub-combination of sub-loan level cash flows comprising sub-loan level cash flows from across the plurality of home mortgage loans, and the sub-combination of sub-loan level cash flows exhibiting heightened sensitivity to at least one of the different types of sub-loan level risk in accordance with the heightened sensitivity to the at least one of the different types of sub-loan level risk exhibited by the sub-loan level cash flows that form the sub-combination of sub-loan level cash flows,

(2) packaging the sub-combination of sub-loan level cash flows to create one of the financial assets, the financial asset that is created accentuating the at least one of the different types of sub-loan level risk in accordance with the heightened sensitivity exhibited by the sub combination of sub-loan level cash flows, thereby configuring the financial asset to operate as a hedge against a risk that opposes the at least one of the different types of sub-loan level risk,

(3) repeating the selecting and packaging steps to create additional financial assets, the additional financial assets including different financial assets which accentuate other different types of sub-loan level risk and which exhibit heightened sensitivity to the other different types of sub-loan level risk as compared to the sensitivity to the other different types of sub-loan level risk exhibited by the plurality of home mortgage loans as a whole, thereby configuring the additional financial assets to operate as hedges against other risks that oppose the other different types of sub-loan level risk, and storing information pertaining to a mapping relationship between a plurality of financial assets and a plurality of sub-loan level cash flows in a data storage system of a computer system, the mapping relationship describing a manner in which cash flows flowing into each of the plurality of financial assets are traceable back to the plurality of sub-loan level cash flows including (i) a manner in which the plurality of sub-loan level cash flows are derived from a plurality of home mortgage loans based on a decomposition of each of the plurality of home mortgage loans into the plurality of sub-loan level cash flows and (ii) a manner in which the plurality of sub-loan level cash flows are repackaged to form the plurality of financial assets backed by the plurality of sub-loan level cash flows,

wherein the plurality of sub-loan level cash flows includes including a first plurality of positive sub-loan level cash flows derived from principal payments of a borrower, a second plurality of positive sub-loan level cash flows derived from interest payments of a borrower, a third plurality of positive sub-loan level cash flows derived from borrower-paid fees, and at least one sub-loan level cash flow derived from loan expenses, the first, second and third pluralities of sub-loan level cash flows being positive cash flows and the at least one additional sub loan level cash flow being a negative cash flow from the perspective of one or more of the investors in the owners of the plurality of financial assets, and

wherein the financial assets include a financial asset which accentuates the sub-loan level risks associated with the first plurality of positive sub loan level cash flows derived from the principal payments, a financial asset which accentuates the sub-loan level risks associated with the second plurality of positive sub-loan level cash flows derived from the interest payments, a financial asset which accentuates the sub loan level risks associated with the third plurality of positive sub loan level cash flows derived from borrower-paid fees, and a financial asset which accentuates the sub-loan level risks associated with the at least one negative sub-loan level cash flow;

(D) storing information concerning the financial assets in a data storage system of the computer system, including a mapping relationship which describes a manner in which the plurality of sub-loan level cash flows from the plurality of home mortgage loans are decomposed and repackaged to form the financial assets;

(E) processing loan payment information in accordance with the stored information and generating information regarding investment proceeds due to the investors in the financial assets in the capital markets one or more owners of the plurality of financial assets, the processing and generating steps being performed by the computer system, and the processing and generating steps including

(1) receiving information regarding a plurality of loan payments in connection with the plurality of home mortgage loans,

(2) accessing the stored information that describes the mapping relationship between the plurality of financial assets and the plurality of sub-loan level cash flows, and

(3) allocating, for each of the plurality of home mortgage loans, portions of the loan payments corresponding to the plurality of sub-loan level cash flows to a respective one of the plurality of financial assets based on the mapping information; and

(F) allocating payments for the investors in the one or more owners of the plurality of financial assets based on funds derived from the plurality of loan payments and in accordance with the allocation of the plurality of sub-loan level cash flows to the respective financial assets, the allocating step being performed by the computer system.

22. A method according to claim 21, wherein at least one of the plurality of financial assets is a debt instrument configured for sale to one of the investors an investor.

23. A method according to claim 21, wherein the information regarding the plurality of loan payments is received from one or more loan servicers.

24. A method according to claim 21, wherein the stored information pertaining to the mapping relationship reflects multiple layers of decomposition and repackaging of sub-loan level cash flows between the plurality of home mortgage loans and the plurality of financial assets.

25. A method according to claim 21, wherein the stored information pertaining to the mapping relationship reflects an additional sub-loan level cash flow which is added to a respective one of the home mortgage loans during a term of the respective home mortgage loan, the additional sub-loan level cash flow corresponding to an additional line of credit extended to a borrower associated with the respective home mortgage loan.