Automated loan evaluation system

• US 20070043654A1
• Filed: 02/21/2001
• Published: 02/22/2007
• Est. Priority Date: 02/22/2000
• Status: Active Grant

• Current Assignee: Lehman Brothers Limited (Barclays PLC)
• Original Assignee: Lehman Brothers Limited (Barclays PLC)
• Inventors: Libman, Brian
• Granted Patent: US 7,310,618 B2
• 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

Disclosed is a system and method of creating a probability of delinquency database using historical loan data and a plurality of loan factors, for use in determining a loan rate, the method comprising: identifying a plurality of multi-level loan factors; creating a pool from the historic loan data, wherein the first pool contains records relating to the plurality of multi-level loan factors; separating the pool into a set of groups based on the multi-level loan factors, calculating a probability of delinquency for each group; and arranging the probability of delinquency for each group into a database such that the probability of delinquency for each group is accessible for any combination of multi-level loan factors. Also disclosed is a system and method of determining the loan rate for a loan for a borrower based on the probability of delinquency database.

Claims

1. A method of creating a probability of delinquency database using historical loan data and a plurality of loan factors, for use in determining a loan rate, the method comprising:

(a) identifying a plurality of multi-level loan factors;

(b) creating a first pool from the historic loan data, wherein the first pool contains records relating to the plurality of multi-level loan factors;

(c) identifying a significant multi-level loan factor from the plurality of multi-level loan factors;

(d) separating the first pool into a plurality of subpools based on levels of the significant multi-level loan factor;

(e) separating each subpool of the plurality of subpools into a plurality of groups based on a second plurality of multi-level loan factors, wherein the second plurality of multi-level loan factors does not include the significant multi-level loan factor;

(f) calculating a probability of delinquency for each group; and

(g) arranging the probability of delinquency for each group into a database such that the probability of delinquency for each group is accessible for any combination of multi-level loan factors.

2. The method of claim 1, wherein the multilevel loan factors are selected from the group consisting of:

Loan-to-Value (“

LTV”

), mortgage pay history, and credit rating.

3. The method of claim 1, wherein the significant multilevel loan factor is the mortgage pay history.

4. The method of claim 1, wherein the probability of delinquency for each group is transformed into a base credit score.

5. The method of claim 4, wherein the database is represented as a printed table.

6. The method of claim 1, further comprising:

(a) identifying a plurality of either-or loan factors;

(b) creating a second pool from the historic loan data, wherein the second pool contains records relating to the plurality of either-or loan factors; and

(c) calculating an either-or probability of delinquencies for each either-or loan factor in the plurality of either-or loan factors, wherein each either-or probability of delinquency is combinable with any probability of delinquency for each group.

7. The method of claim 6, wherein the either-or loan factors are selected from the group consisting of:

alternative documentation, stated documentation, number of units, owner occupation, no mortgage history, combined loan-to-value ratio, cash out, debt-to-income ratio, and bankruptcy.

8. The method of claim 6, wherein the either-or probability of delinquency for each group is transformed into an add-on credit score.

9. The method of claim 8, wherein the plurality of either-or probability of delinquency is represented as a printed table.

10. A method of determining the loan rate for a loan for a borrower comprising:

(a) determining a payment history of the borrower;

(b) determining a Loan-to-Value (“

LTV”

) for the borrower;

(c) determining a credit rating for the borrower;

(d) selecting a group of historical data, wherein each element of the group has a historic payment history within a first predetermined amount of the borrower'"'"'s payment history, a historic credit rating within a second predetermined amount of the borrower'"'"'s credit rating, and an historic LTV within a third predetermined amount of the borrower'"'"'s LTV;

(e) determining a first probability of delinquency of the group from an incidence of delinquency for the group;

(f) determining a second probability of delinquency using applicable add-on loan factors;

(g) combining the first probability of delinquency with the second probability of delinquency to determine a total probability of delinquency factor; and

(h) calculating the loan rate for the loan using the total probability of delinquency factor.

11. The method of claim 10, wherein step (d) further comprises:

(a) determining a credit grade for the borrower by using a predetermined criteria based on the borrower'"'"'s payment history;

(b) selecting a credit grade matrix based on the credit grade; and

(c) selecting the first probability of delinquency from the credit grade matrix using the borrower'"'"'s credit rating and the borrower'"'"'s LTV.

12. The method of claim 10, wherein step (f) further comprises:

(a) determining which add-on factors are applicable to the borrower,

(b) adding the applicable add-on to determine the total probability of delinquency factor.

13. The method of claim 10, wherein the add-on factors are selected from the group consisting of:

alternative documentation, stated documentation, number of units, owner occupation, no mortgage history, combined loan-to-value ratio, cash out, debt-to-income ratio, and bankruptcy.

14. The method of claim 10 wherein the loan rate is calculated by a function of:

a Funding Rate, an Average Life of the Loan, the total probability of delinquency, an Expected Loss, and a Profit Goal.

15. The method of claim 10 wherein the loan rate is calculated by:

$P=\frac{\left[F<br><br>\left(A\right)<br><br>C+L-C<br><br>\left(L\right)+G\right]}{A<br><br>\text{\hspace{1em}<br><br>}<br><br>C}$

Wherein P is the Loan Rate, F is a Funding Rate, A is an Average Life of the Loan, C is (1 minus the total probability of delinquency) multiplied by 100, L is an Expected Loss, and G is a Profit Goal.

16. The method of claim 10, wherein the historical data is divided into a plurality of groups divided by payment histories, LTVs, and credit ratings.

17. The method of claim 16, wherein the probability of delinquency for each group of the plurality of groups is computed and stored in a database.

18. The method of claim 17 wherein the probability of delinquency for each group is transformed into a loan score.

19. The method of claim 18 wherein the database is stored in a matrix format.

20. The method of claim 10, wherein the additional probability of delinquencies are transformed into add-on scores.

21. A method of determining a total probability of delinquency when a first payment history, a first Loan-to-Value (“

LTV”

), a first credit rating, and at least one add-on loan factor are known for a particular borrower of a loan, the method comprising;

(a) obtaining a set of historic loan data comprising records having historic payment histories, historic LTVs, historic credit ratings, and at least one historic add-on loan factor;

(b) separating the records of historic loan data into a first pool based on the absence of the at least one historic add-on factor;

(c) grouping the first pool into groups based on the historic payment histories, the historic LTVs, and the historic credit ratings;

(d) determining a first probability of delinquency for the particular borrower by calculating a first incidence of delinquency of one group of the first pool;

(e) separating the records of historic loan data into a second pool based on whether the records contain the at least one historic add-on factor;

(f) grouping the second pool into sub-pools based on the at least one historic add-on factor;

(g) determining a second probability of delinquency for the particular borrower by calculating a second incidence of delinquency of one subpool of the second pool; and

(h) combining the first probability of delinquency with the second probability of delinquency to determine the total probability of delinquency for the particular borrower.

22. The method of claim 21, wherein step (c) further comprises:

(a) dividing the first pool into a plurality of levels based on the historic payment histories, and

(b) dividing the levels into a plurality of groups based on the historic LTVs and the historic credit ratings.

23. The method of claim 21, wherein the one group has a second payment history with a first predetermined amount of the first payment history, a second credit rating within a second predetermined amount of the first credit rating, and a second LTV within a third predetermined amount of the first LTV.

24. The method of claim 21, wherein the first probability of delinquency is transformed into a base credit score.

25. The method of claim 21, wherein the second probability of delinquency is transformed into an adjustment to the base credit score.

26. The method of claim 21, wherein the at least one add-on loan factor is selected from the group consisting of:

alternative documentation, stated documentation, number of units, owner occupation, no mortgage history, combined loan-to-value ratio, cash out, debt-to-income ratio, and bankruptcy.