Method for mortgage and closed end loan portfolio management

• US 7,020,631 B2
• Filed: 05/21/2001
• Issued: 03/28/2006
• Est. Priority Date: 07/11/1997
• Status: Expired due to Term

• Current Assignee: The Chase Manhattan Bank (JP Morgan Chase & Co)
• Original Assignee: The Chase Manhattan Bank (JP Morgan Chase & Co)
• Inventors: Freeman, Charles J., Xue, Xingxiong
• Primary Examiner(s): Patel, Jagdish N
• Application Number:
  US09/862,055
• Publication Number:
  US 20010029477A1
• Time in Patent Office: 1,772 Days
• Field of Search: 705/36.R, 705/35, 705/38, 705/40
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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

Abstract

A method for mortgage and closed end loan portfolio management in the form of an analytic tool designed to improve analysis of past and future performance of loan portfolios. In accordance with one aspect thereof, the invention aggregates loan units into loan vintages, wherein the loans in each vintage originate within a predetermined time interval of one another. The invention compares different vintages to one another in a manner such that the ages of the loans in the different vintages are comparable to one another. An early warning component of the system predicts delinquency rates expected for a portfolio of loans during a forward looking time window.

Claims

1. A computer implemented process for predicting the performance of a loan portfolio, wherein each loan portfolio comprises a plurality of loan units, each of the loan units having a borrower, the computer implemented process comprising:

separating the loan units of the loan portfolio into a plurality of loan groups such that a date of origination of each of the loan units included in a loan group are all within a first time interval;

assigning a group date of origination to each of the loan groups;

selecting an analysis time interval;

selecting a plurality of analysis points in time within the analysis time interval;

determining historical bad performance by identifying the loan units in each loan group that have experienced bad performance at each analysis point in time, a bad performance is determined if payments are in arrears at the particular analysis point in time;

obtaining a credit score for each of the borrowers of the loan units; and

determining a projected bad rate for each loan unit by combining the historical bad performance for each loan unit and the credit score of the borrower of the at least one loan unit.

2. The process of claim 1, in which the step of combining the historical bad performance and the credit scores is carried out by using a logistic regression formula.

3. The process of claim 2, in which the logistic regression formula is

Log(P/(1−

P))=A+(B1*AGE)+B2*C+B3*D1+B4*D2+B5*SCORE+B6*NO SCORE)

wherein P is a projected bad rate for a particular loan unit, AGE is the age of the loan group to which the particular loan unit belongs, SCORE is the credit score for the borrower of the particular loan unit, C0, D1, D2 and NO SCORE are dummy variables, and A, B1, B2, B3, B4, B5 and B6 are estimated coefficients.

4. The process of claim 3, wherein the value C0 is assigned a value of one if the particular loan unit is current at the beginning of the first time interval and zero otherwise, the variable D1 equals one if the loan unit is one month past due at the beginning of first time interval and is zero otherwise, D2 is assigned a value of one if the loan unit is two months past due at the beginning of the first time interval and zero otherwise, and NO SCORE equals one if the loan unit has no credit score available at the beginning of the first time interval and zero otherwise.

5. The process of claim 3, further comprising:

applying the logistic regression formula to each loan unit in a particular loan group; and

aggregating the results of the logistic regression formula into a projected bad rate for the particular loan group.

6. The process of claim 5, further comprising using the projected bad rate for the particular loan group to decide whether to purchase the particular loan group.

7. The process of claim 5, further comprising using the projected bad rate for the particular loan group to decide whether to include the particular loan group in the portfolio.

8. The process of claim 5, further comprising using the projected bad rate for the particular loan group to decide servicing rights with respect to the particular loan group.

9. The process of claim 5, further comprising:

repeating the applying and aggregating steps for each of the plurality of loan groups in the portfolio and aggregating the projected bad rates for the plurality of loan groups into a projected bad rate for the portfolio.

10. The process of claim 5, further comprising using the projected bad rate for the portfolio to decide whether to purchase the portfolio.

11. The process of claim 5, further comprising using the projected bad rate for the portfolio to decide servicing rights with respect to the portfolio.

12. The process of claim 3, further comprising:

defining different loan groups;

applying the logistic regression formula to each loan unit in the different loan groups; and

aggregating the results of the logistic regression formula into predicted bad rates for the different loan groups.

13. The process of claim 12, wherein the step of defining different loan groups further comprises separating the loan units of the loan portfolio into a plurality of different loan groups such that the loan units included in a particular different loan group share a common loan characteristic.

14. The process of claim 13, wherein the common loan characteristic is the location of the origination of the loan units.

15. The process of claim 13, wherein the common loan characteristic is the rate type of the loan units.

16. The process of claim 13, wherein the common loan characteristic is the loan to value ratio of the loan units.

17. The process of claim 1, further comprising the step of graphically depicting the projected bad rates in the form of a first curve.

18. The process of claim 17, further comprising the step of producing a bar chart showing current mean bad rates and forecasted mean bad rates and superimposing the first curve over the bar chart.

19. The process of claim 18, further comprising the step of creating the first curve by creating a quarterly bad rate curve, smoothing the quarterly bad rate curve by averaging the values thereof with one another and further smoothing the quarterly bad rate curve by taking a risk ratio thereof.

20. The process of claim 19, further comprising the step of creating markers on the first curve including markers which show the changes in the first curve at a positive to a negative slope transition thereof and markers which show jump points of a predetermined size.

21. The process of claim 1, wherein the first time interval is a calendar quarter.

22. The process of claim 1, wherein the analysis time interval is a two year interval.

23. The process of claim 1, wherein the step of obtaining the credit score further comprises obtaining the credit score from credit bureau rating agency.