SYSTEM AND METHODS FOR RESIDENTIAL REAL ESTATE RISK TRANSFERENCE VIA ASSET-BACKED CONTRACT

• US 20160364803A1
• Filed: 08/29/2016
• Published: 12/15/2016
• Est. Priority Date: 09/28/2012
• Status: Abandoned Application

• Current Assignee: Kirkwall Investment Partners Limited
• Original Assignee: Kirkwall Investment Partners Limited
• Inventors: Nash, Jeffrey, Lombardi, Eduardo, Myron, Derek
• Application Number:
  US15/250,376
• Publication Number:
  US 20160364803A1
• Time in Patent Office: Days
• US Class Current: 1/1
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 50/16 Real estate

Abstract

Real estate risk may be transferred via a contract associated with a real estate property. Such a contract may be an asset-backed index swap or an investment contract in which an owner entity of the real estate property grants to an investor entity an economic right to a portion of future appreciation of the real estate property in exchange for consideration. The contract may expire responsive to a transfer of title of the real estate property. Exemplary implementations may provide a way to slice off the growth component of the property to an investor who wants it yet leaves the utility value and existing equity squarely in the hands of the homeowner. This division of growth and utility components may allow the homeowner to sell just the growth component of the property—and do so at a lower price in exchange for the convenience and liquidity tendered.

Claims

1-30. -30. (canceled)

31. A system configured for real estate risk transference via a contract associated with a first real estate property, the contract being an asset-backed index swap or an investment contract in which an owner entity of the first real estate property grants to an investor entity an economic right to a portion of future appreciation of the first real estate property in exchange for consideration, the contract expiring responsive to a transfer of title of the first real estate property, the system comprising:

a plurality of processors, comprising;

a first processor configured to execute computer-readable instructions to determine future cash settlement values of expiry per period for a plurality of periods based on information received by the first processor, the received information including one or more of a term of the contract, an appreciation projection associated with the first real estate property, or a conditional prepayment rate vector;

a second processor configured to execute computer-readable instructions to determine a probability of expiry per period for the plurality of periods, a given probability of expiry for a corresponding period being based on a probability of a transfer of title of the first real estate property during the corresponding period, transfer of title being effected by either a sale by the owner entity of the first real estate property or death of the owner entity; and

a third processor configured to execute computer-readable instructions to determine a present value of the contract using a probabilistic model based on the future cash settlement values for periodic expires received from the first processor, and the probabilities of expiry for corresponding periods received from the second processor,

wherein the present value of the contract is outputted by the third processor to one or more client computing platforms, enabling an investor entity to access the present value of the contract via a client computing platform for use by the investor entity as a basis for the consideration to obtain the economic right to the portion of future appreciation of the first real estate property; and

wherein the plurality of processors is configured to provide parallel and coordinated processing.

32. The system of claim 31, wherein the system is connected to the one or more client computing platforms via a network.

33. The system of claim 31, wherein the plurality of processors further comprises a fourth processor configured to execute computer-readable instructions to determine a current cash settlement value of the contract, the cash settlement value being an amount due to the investor entity responsive to the contract being expired.

34. The system of claim 33, wherein the cash settlement value is equal to the greater of a shared index appreciation and an early termination value.

35. The system of claim 34, wherein the shared index appreciation is a contractual appreciation share multiplied by a change in a designated index multiplied by an initial value of the first real estate property, the appreciation share being an amount of future appreciation conveyed by the contract, the designated index being an index that measures prices of residential housing, the initial value being the value of the first real estate property when the contract is initially placed into force.

36. The system of claim 34, wherein the early termination value is determined based on an early termination provision, the early termination provision designating either a set schedule or an accretion model with a base amount plus an annual rate of return for a duration of an early termination period and wherein, under the set schedule, the early termination value is determined from a table via a look-up based on an age of the contract.

37. The system of claim 36, wherein the base amount is a total contract cost to an investor associated with the contract.

38. The system of claim 31, wherein the cash settlement value for each projected period is the greater of a shared index appreciation or an early termination value, the shared index appreciation is a contractual appreciation share, the early termination value being an amount owed to the investor entity responsive to the contract expiring during an early termination period stipulated in the contracts.

39. The system of claim 31, wherein the plurality of processors further comprises a fifth processor configured to execute computer-readable instructions to determine a projected home price index associated with the first real estate property based on one or more home price appreciation vectors, the projected home price index describing appreciation of the first real estate property between a projection date and a contract termination date, a given home price appreciation vector representing a forecast scenario of an outcome of appreciation of the first real estate property.

40. The system of claim 39, wherein a starting point of the projected home price index is equal to a current designated index value divided by a contact starting index multiplied by one hundred.

41. The system of claim 39, wherein the outcome resulting in an early termination of the contract is one of an expected outcome, a stressed outcome, and a situational outcome.

42. The system of claim 39, wherein the given home price appreciation vector accounts for one or more of historical index performance, macro-economic factors, and local market demographics.

43. The system of claim 39, wherein the given home price appreciation vector includes one or more of a linear function, a parabolic function, a polynomial function, a sinusoidal function, and a stochastic function.

44. The system of claim 31, wherein the plurality of processors further comprises a sixth processor configured to execute computer-readable instructions to determine an early termination value of the contract, the early termination value being an amount due to the investor entity in the event that the contract is terminated during an early termination period set forth in the contract, the early termination value being the greater of a participation share of appreciation or an early termination amount set forth in the contract.

45. The system of claim 31, wherein the plurality of processors further comprises a seventh processor configured to execute computer-readable instructions to determine conditional prepayment rate vectors associated with the contract, a given conditional prepayment rate vector representing a prepayment scenario based on a statistical likelihood the contract will terminate within a given period.

46. The system of claim 45, wherein the given conditional prepayment rate vector is determined based on one or more of demographic information associated with the owner entity, home price index performance, a proximity to contract origination, an early termination provision, or model stressing.

47. The system of claim 45, wherein the given conditional prepayment rate vector is dynamic and changes over time.

48. The system of claim 31, wherein the plurality of processors further comprises an eighth processor configured to execute computer-readable instructions to determine a value of the contract based on cash flow associated with the contract by summing discounted projected cash flows for future periods, a given projected cash flow for a given period being the greater of a shared home price appreciation and an early termination value, multiplied by the conditional prepayment rate vector, wherein the shared home price appreciation equals period home price index divided by a starting home price index multiplied by an initial home value.

49. The system of claim 48, wherein the given projected cash flow for the given period is discounted by a target return to arrive at a present value.

50. The system of claim 31, wherein the probabilistic model is a modified Black-Scholes model, the modified Black-Scholes model being a Black-Scholes model that is modified by (1) synthetically replicating the contract with commonplace contracts puts and calls, (2) solving for a value of the commonplace contracts puts and calls across all possible monthly expires, and (3) multiplying the value of the commonplace contracts puts and calls by the conditional prepayment rate vector or a probability of expiry in individual periods.