System for the operation and management of one or more financial accounts through the use of a digital communication and computation system for exchange, investment and borrowing5875437Abstract A practical communication and computer based system and method for effecting exchange, investment and borrowing involves the use of digital communication and computation terminals distributed to users and service providers. Through the system described and its combined computer and communication terminals, client/customers may purchase goods and services, save, invest, track bonuses and rebates and effect enhanced personal financial analysis, planning, management and record keeping with less effort and increased convenience. Through a prioritization function, the client specifies her financial objectives, her risk preference, and budgetary constraints. The prioritization function automatically suggests to the individual a portfolio of asset and liability accounts that may be credited and/or debited to provide the required funds for consumption and to form investments and borrowing to best realize her financial objectives over a defined time horizon. If desired, the system automatically manages a client's budgetary and financial affairs through a system of expert sweeps based on a client's preferences. The client's accounts are monitored via a borrowing power baseline, and considered imbalanced if the client's borrowing power is less than the minimum borrowing power. If the account is imbalanced, the client may reallocate the assets and liabilities within the client account and/or modify a set of constraints on the client account. If the client account is still not balanced after modification of the account, the system will deny authorization for certain requested transactions, and may initiate the liquidation of certain asset accounts and reduce the balances of one or more liability accounts. Claims I claim: Description BACKGROUND OF THE INVENTION
TABLE 2-A1
__________________________________________________________________________
VOLUME, VALUE AND GROWTH OF DIFFERENT PAYMENT
INSTRUMENTS
Annual
Growth
Percentage
Type of Volume
Total Value
Average Dollar
(1986-
Volume
Payment (Millions)
($ trillions)
Value 1987)
Composition
Instrument (1) (2) (3) (4) (5)
__________________________________________________________________________
Nonelectronic
Cash 278,600
$1.4 $5 8% 83.42%
checks 47,000
55.8 1,188 5 14.07
Credit Cards 5,111
0.317 62 7 1.53
Travelers
Checks 1,354
0.047 35 9 0.40
Money Orders 811 0.07 86 4 0.24
Total Nonelectronic Transfers 99.66%
Electronic
ACH 936 $ 3.6 $3,882 26% 0.28%
Wire transfers
84 281.0 3,300,000
7 0.03
Pos 55 0.000822
15 59 0.02
ATM bill
payment 29 0.002 70 3 0.01
Total Electronic Payments
0.34%
__________________________________________________________________________
Cash payments total 278.6 billion transactions per year, whereas those made by check are equal to 47 billion and those made by credit card are 5.11 billion. Because of the differences in the amount of the transactions, however, there is a greater dollar value with respect to transactions made by check, as opposed to cash. There were $55.8 trillion in checking transactions as opposed to only $1.4 trillion in cash and $0.317 trillion by credit card. The average size of a check transaction is $1,188, the average size of a credit card transaction is $62 and the average size of a cash transaction is only $5. Recent studies from the Federal Reserve Board suggest an economic rationale which explains why consumers pay by check where larger dollar amounts are involved. They stated that, because of the benefits of the "float" which approximates 3.7 days for each checking transaction, consumers and businesses have an incentive to use checks for larger transactional payments. However, another compelling reason for consumers to use checks is that consumers are afforded, albeit in an archaic manual form, a means of record keeping for their transactions that is contemporaneous with the execution of the transaction. With cash transactions, obviously, that type of convenience and contemporaneous record keeping does not occur. With regard to transactions utilizing credit cards, although one receives a piece of paper, the transactions are not incorporated into any kind of systematic accounting that is held or may be easily accessed by the consumer. It is our view that this record keeping feature makes check transactions the most significant dollar value means of exchange in the United States. When the amount of money spent matters, consumers prefer to have a record of the transaction.
TABLE 21-2
__________________________________________________________________________
USER PRICES AND SOCIAL COSTS OF DIFFERENT PAYMENT
INSTRUMENTS, 1987
Float
Total Social
Transfer/
or Real
Payment (+
Production
Processing
Resource
for Cost, -
Total User
Type of
Cost (Unit
Cost (Unit
Cost (Unit
for Benefit)
Changes
Payment
Cost) Cost) Cost) (Unit Cost)
(Unit Price)
Instrument
(1) (2) (1) + (2) = (3)
(4) (3) + (4) = (5)
__________________________________________________________________________
Nonelectronic
Cash $419 $10,858
$11,277
$13,283
$24,560
(0.00)
(0.04)
(0.04) (0.05)
(0.09)
Checks 1705 35,641
37,346 -39,100
-1,754
(0.04)
(0.76)
(0.79) (-0.83)
2,249
Credit Cards
2,257 2,249 4,506 2,257
2,249
(0.44)
(0.44)
(0.88) (-0.44)
(0.44)
Travelers
995 609 1,604 0 1,604
Checks (0.73)
(0.45)
(1.18) (0.00)
(1.79)
Money 933 518 1,451 0 1,451
Orders (1.15)
(0.64)
(1.79) (0.00)
(1.79)
Electronic
ACH $0 $273 $273 -$1 $272
(0.00)
(0.29)
(0.29) (-0.00)
(0.29)
Wire 0 616 616 -2 614
transfers
(0.00)
(7.33)
(7.33) ('10.02)
(7.31)
POS 0 26 26 0 26
(0.00)
(0.47)
(0.47) (0.00)
(0.47)
ATM bill
6 13 19 1 20
payment
(0.21)
(0.45)
(0.66) (0.03)
(0.69)
__________________________________________________________________________
Source: Humphrey, David B. and Berger, Allen N. "Market Failure and
Resource Use: Economic Incentives to Use Different Payment Instrument," i
The U.S. Payment System; Efficiency, Risk and the Role of the Federal
Reserve: Proceedings of a Symposium on the U.S. Payment System, Kluwer
Academic Publishers, 1990.
Officials from the Federal Reserve Board have estimated the production and processing cost of cash transactions in the United States at approximately $11.27 billion. Transactions paid by check cost considerably more, $37.366 billion. Transactions paid by credit card cost $4.5 billion. This equates to a production and processing cost per transaction of $0.04 for every cash transaction, $0.79 for every transaction made by check and $0.88 for every transaction made by credit card. These cost estimates represent the direct production and processing costs that are ultimately borne by the consumer. They do not, however, include the attendant costs required for a consumer to then efficiently serve as the systems integrator for her banks, brokers, insurers and merchants. The consumer is left to aggregate disparate data from cash, check and credit card transactions into an amenable financial plan and integrate this information to satisfy annual reporting requirements such as tax returns to the treasury. In addition to the approximately $50 billion cost of production and processing exchange transactions, currently there is no adequate means of assuring the security of transactional data, and tracking that data and compiling it for review. Credit card fraud losses are estimated to amount to $70 billion per year in the U.S. alone. Unreported cash transactions are estimated to defraud the U.S. Government of $150 billion in annual tax revenue. These annual fraud-related losses are approximately equal to the projected annual federal budget deficit. The current system of exchange and security verification revolves around the use of a social security number, name, address and credit card or checking account number. In other words, authentication of identity is almost solely based upon numeric or alphanumeric data. Once a criminal has misappropriated some or all of this data, he can effect almost any transaction and can effectively control an individual's assets, liabilities, and accounts. Currently, there is no convenient or adequate means of tracking transactional data for consumption, savings, investments, bonuses, discounts and rebates associated with these activities. This is financially injurious to the U.S. Treasury, and it is very inconvenient for consumers. Billions of hours of citizens' time is spent compiling data for tax returns. Millions of hours of IRS officials' time is spent checking them for accuracy. James L. Payne in Costly Returns has estimated the annual cost of tax compliance in the United States alone at $360 billion. Moreover, under the current system of exchange it is impossible for economic policy makers to get an accurate real time reading on the state of the economy, and consequently, economic policy is frequently ill-timed and misguided. Data is also not compiled and presented in a manner that allows individuals to make the appropriate informed decisions about their consumption, savings and investment behavior. This makes it difficult for consumers to properly visualize the value of their potential savings and investment. This has led to a consumption-based society with inadequate levels of personal savings, potentially resulting in disastrous long term consequences for the American economy and society at large. Furthermore, this excessive reliance on paper-based transactional media has an adverse environmental impact and may, according to certain studies, directly contribute to global warming. There is a significant adverse environmental impact of the paper currency and paper check-based society. Credit and debit cards also generate paper and carbon based transactional reporting media. None of the current forms of exchange provide a sufficient benefit for consumers to change their modes of transactional behavior. The current system of exchange, savings, investment and borrowing makes it very difficult to adequately manage risk exposure for and by consumers, banks, and the U.S. Government. Accordingly, each year, approximately 10 million individuals are forced to file bankruptcy; financial institutions incur substantial bad debt losses; and the U.S. government is forced to write off uncollectible tax revenues. The aggregate production and processing cost of the current system of exchange in the United States is estimated by Federal Reserve officials to be in excess of $60 billion each year. However, as demonstrated above, the total direct and indirect social, economic and environmental costs associated with the predominantly cash and check-based current system are far greater. SUMMARY OF THE INVENTION The present invention is a method and apparatus for effecting an improved personal financial analysis, planning and management system incorporating a digital system of electronic exchange, investment and borrowing with means of implementing, coordinating, supervising, planning, analyzing and reporting upon an array of asset accounts such as investments and liability accounts such as credit facilities. The apparatus comprises a wide area network of digital computation and communication instruments, including various personal digital assistants that may be linked to central processors and data storing facilities. Through a prioritization function, an individual may maximize her financial well being while satisfying the financial institution's objectives. The individual specifies her financial objectives, a forecast of economic and financial variables concerning a set of possible scenarios, her risk preference and the budgetary constraints to which she is subject. The prioritization function suggests consumption levels and investments and credit facilities to the individual to best realize her financial objectives. The function may also suggest one or more contractual agreement(s) reflecting a derivative form of financial instrument(s) that may best assist the individual in realizing her financial objectives. The suggested prioritization function may recommend various forms of "sweeping" or allocating funds from or to one or more asset or liability accounts. Thus, the present invention provides a convenient, cost effective, and rigorous means of improving financial well-being. The prioritization function also provides financial institutions an easily definable means of managing individual accounts that have a potentially infinite number of investment opportunities in a way that minimizes the detrimental aspects of enforcing compliance while satisfying the financial institution's credit-related objectives. The personal financial management system of the present invention includes both standard or derivative forms of asset accounts and liability accounts and may feature credit facilities or loans that are secured by one or more of the asset accounts. Periodic loan payments need not be used to pay off the principal of the loan, but may be used according to a prioritized allocation of funds. As will be detailed below, the elimination of amortization for a more advantageous use of the funds may result in substantial improvements in an individual's net worth while having the ultimate effect of making better housing affordable to a greater number of individuals. In preferred embodiments, the financial management system includes a type of credit facility or loan that features a variable amortization schedule and is secured by one or more lien(s) on, security interest(s) in, pledge(s), agreement(s) or mortgage(s) of real property and one or more other assets. This loan is referred to as "Home Owner's Managed Equity" Account or HOME Account.TM. mortgage; and, regardless of the specific legal form it may take, the security element of this loan will be referred to as a lien. Unlike conventional loans which provide for regular amortization payments, the HOME Accounts.TM. mortgage need not be amortized. Rather, the system of the present invention gives the individual borrower the opportunity to maximize her investment earnings by a variety of means including but not limited to distributing the monies that would normally be used to amortize the loan among assets that give her a greater return. For example, the borrower can receive expert advice and the assistance of decision support systems from the system of the present invention. He also has the option to use the funds that would otherwise have been used to amortize the loan to make a contribution to a pension or retirement account such as an IRA, KEOUGH, S. E. P. or corporate pension plan, or purchase investments such as life insurance or annuities in which earnings on premium payments are not taxed until they are withdrawn. Alternatively, the borrower can use the funds that might have otherwise been used for amortization payments to decrease the amount outstanding in a liability account or to increase the value of an asset account which is used as collateral for the loan. The system is flexible and is not dependent upon the continuance of existing regulations. If the applicable regulations are altered, the system of the present invention will assist the individual by suggesting alternate allocations of funds to or from asset and liability accounts based upon the regulations then in effect or to be in effect in the future. The system of the present invention utilizes various optimization techniques, for example, stochastic programming, and offers the consumer the benefits of an objective expert advisor at a very low cost. Such expert can provide her with an integrated financial plan that is frequently updated together with financial management tools such as expert account sweep features that automatically allocate funds in accordance with the plan. In addition, an analysis of current returns on asset accounts and costs of liabilities after consideration of applicable taxes and transaction costs may be provided. This system advantageously results in tremendous time savings to the individual consumer by allowing her to avoid much of the work currently required to coordinate and monitor her assets and liabilities. Similarly, the financial institution may offer one or more derivative forms of financial instrument(s) or contractual agreements to the individual. Such instrument may detail investment and/or borrowing opportunities which can be realized through the acquisition or sale of one or more securities, real assets, credit facilities and/or financial instruments. Derivative products may also accommodate the individual's desired gross and net cash flows, desired balances in various asset and liability accounts over time, desired risk level while considering the level of uncertainty surrounding the value of forecast variables. One particularly advantageous derivative product enables a present homeowner to enjoy the benefits of the present invention without having to immediately retire an existing mortgage and obtain entirely new refinancing on her home. In this instance, the homeowner continues to make periodic mortgage payments to the original mortgage holder either directly by the homeowner or through the financial institution that offers the HOME Account.TM. mortgage. In either case, as periodic payments are made to the original mortgage holder, a credit line from the HOME Account.TM. mortgage is debited and an asset account is credited with an amount equal to at least a part of the amortization portion of each periodic payment to the original mortgage holder. As a result, the sum of the principal remaining on the original mortgage and the credit extended through the HOME Account.TM. mortgage may be as much or more than the principal due on the original mortgage at the time the HOME Account.TM. mortgage credit line was first debited. Thus, this HOME Account.TM. mortgage derivative product may effectively reduce, eliminate or reverse the amortization feature of the original mortgage. In similar fashion, the amount of an individual's mortgage can be increased with increases in value of her home and/or of other asset accounts used to secure any loans from her HOME Account.TM. mortgage. For example, as a individual's home increases in value, additional loans may be made to the individual so that the loan to value ratio remains constant at a predetermined percentage. If the individual moves and acquires a more expensive house, the HOME Account.TM. mortgage may be increased and the new house substituted as collateral. The system of the present invention utilizes the computation and communications capability of a digital system including a variety of personal digital assistants to send and receive data from a myriad of sources. The system then consolidates that information for the benefit of the consumer regardless of the number of institutions with which the individual has account relationships. The digital system of the present invention can receive financial data, consolidate the financial information, analyze the information, recommend specific actions or transactions which optimize an individual's asset/liability allocation, capital budgeting, or portfolio selection, and negotiate with other parties (or other parties' personal digital assistants) to effect a transaction or series of transactions, and report the results to the individual. The system integrates a widely distributed mobile network of transactional devices with conventional local area networks to form a wide area network (WAN). This innovative metacomputing networked system of the present invention provides a completely new level of financial service through which new financial products can be provided to individuals. The digital system may also substantially reduce the time and expense of accounting, offer on-line budgetary management, and offer reduced filing costs and processing for tax and other forms of required regulatory reporting, if desired by the consumer. Through the digital system, the government may retain all of its seignorage rights. With the use of paper currency, the government retains the value of seignorage, but must bear the cost of printing currency, replacing currency (approximately every 18 months) and exacting tax revenue from those who don't report "bearer bond" commercial transactions. Officials of the Board of the Federal Reserve System have estimated the direct annual cost of printing, controlling the use of and retiring paper, metal currency and other forms of exchange to be approximately $60 billion. The use of a purely electronic currency would eliminate these costs while greatly enhancing the governmental revenues derived from seignorage rights. The system of the present invention would reduce the high cost of printing and coining money and processing checks while improving budgetary accounting and control for governments and individuals. The system of the present invention offers but does not require, backward compatibility with the use of existing credit cards, credit card systems, POS terminals, ATM networks, credit card and check authorization systems, among others. Thus, the present invention does not require abandonment of current systems or hardware. Further, the multiple benefits of the system may motivate financial institutions to buy appropriate personal digital assistants in large quantities to give to customers, much as they currently give away check books and passbooks today. Typically, personal digital assistants include infrared senders/receivers and are advantageously sized and shaped like wallets and/or purses. Once these personal digital assistants are widely used by consumers, merchants will desire to add infrared receivers/senders to their POS terminals. Such receivers/senders offer customers better security and convenience, and allow the merchants to generate more sales and get quicker transaction authorizations. The familiar form or the "walletness" and "purseness" of the personal digital assistants will aid in their rapid adoption. As described below, realistic sound and video action can also be added to these instruments, in order to enhance the user interface. As stated above in the Background of the Invention, the proliferation of new financial service products has not resulted in easy or convenient means of selecting the appropriate forms of credit and investment products to suit consumer needs. Nor do these products include easy or convenient means of keeping track of expenses to make sure consumers stay "on budget". The digital system provided by the present invention offers a convenient means by which each of the aforementioned problems can be solved. Through the use of the HOME Account.TM. mortgage and appropriate personal digital assistants, consumers and providers of financial services gain a much higher level of security with regard to financial transactions and communications concerning implementation, authorization or reporting of that transactional data. The present invention affords consumers a greatly enhanced system for tracking and reporting information concerning their financial affairs. If consumers desire to share such information with their designated financial institution(s) and/or the appropriate tax and regulatory authorities, the digital system uses the designated institution(s) to monitor the consumer's and the institution's credit risk. The present system provides a method and an apparatus to accelerate the movement toward a fully electronic means of exchange, savings and investment. Such system offers numerous advantages to consumers, providers of financial services and government institutions. The system of the present invention also offers a means of improved personal financial analysis, planning and management through a fully integrated and interactive means of asset and liability management, capital budgeting and portfolio optimization. Improved financial analysis, planning and management permits consumers to better realize their financial objectives, such as increased savings for retirement, college education or the purchase of a home. In the preferred embodiment of the invention, various operations research techniques are used, such as stochastic programming, to assist with multiperiod optimization and scenario generation and to aid in the selection of credit and investment alternatives such as derivative financial instruments. The present invention is environmentally sensitive and will, in its fullest implementation substantially reduce the demand for paper and the energy used to make, print and transport the paper. Moreover, the system of the present invention offers a host of conveniences that will favorably impact all parties. From the financial institution's perspective, in addition to the benefits derived from more effectively managing the marketing of a panoply of financial products, the HOME Account.TM. mortgage used in the system of the present invention is superior to the other forms of financial service products in that: (1) it offers the lender an additional source of liquid collateral that will, if properly invested, continually appreciate in value; (2) it establishes an account that will assist in the cross selling and marketing of other financial service products that will produce additional fee revenue for the financial institution; (3) it offers the lender a superior product to market to its individual customers thus affording it a competitive advantage over other financial institutions; (4) it will result in a longer duration of the credit accounts, increased individual loyalty and hence lower marketing costs; (5) it will allow the financial institution the ability to more closely monitor its own and its customers' risk exposures and to take appropriate corrective action; (6) it will allow better pricing margins for the institution because the institution will not be constrained to offering a commodity-like product; and (7) it should rapidly gain wide acceptance in the secondary market in the form of mortgage-backed securities or Real Estate Mortgage Investment Conduit (REMIC) paper because of its added security and longer average life. In addition, origination, administration and servicing of the HOME Account.TM. mortgage of the present invention involves many more considerations than a conventional financial service product. For example, the home owner's total assets, as adjusted to provide the financial institution with a measure of security for its lending, must always be greater than some imposed minimum standard or minimum borrowing power. Calculation of adjusted total assets requires the financial institution to determine the current value of each asset and multiply it by its current loan to value ratio. In practice, these values must be calculated and checked periodically to correctly reflect changes in the value or quantity of any asset or liability which is part of the system. Thus, for example, if borrowing is made against the cash value of the individual's insurance policy or if the value of the individual's bond portfolio changes, the asset values may need to be re-calculated, a new borrowing power determined and this new borrowing power compared to the predetermined minimum borrowing power. If the asset value is less than the minimum, the individual must modify one or more of her account components, e.g., decrease her liabilities or increase the value of an asset account, to bring the total value into the permissible range. A customer information file stored in a relational or object oriented data base management system may be used to facilitate all credit checking activities of the system of the present invention. The structure and complexity of the system of the present invention suggests that the system would be best implemented on a fault tolerant computer system utilizing a real time on-line transaction processing (OLTP) operating system. As described in its preferred embodiment below, the system provides a real time update of all the components which comprise the account and coordinates, supervises, plans, analyzes and reports upon activities among the various system components. BRIEF DESCRIPTION OF THE DRAWINGS These and other objects, features and advantages of the invention will be more readily apparent from the following detailed description of the preferred embodiments of the invention in which: FIG. 1 illustrates the basic structure of the HOME Account.TM. mortgage financial analysis, planning and management system of the present invention; FIG. 2 illustrates the basic structure of the computer system to be used for the method and system of the present invention; FIG. 3 illustrates the basic data structure of the present invention; FIG. 4 generally depicts the primary elements of the mortgage process; FIG. 5 depicts the mortgage reporting process; FIG. 6 depicts the mortgage origination process; FIG. 7 depicts the mortgage servicing process; FIGS. 8A, 8B and 8C illustrate the processing of a transaction request in a HOME Account.TM. system; FIG. 9 illustrates a process for updating and verifying the Home Owner's HOME Account.TM. Equity Borrowing Power; FIGS. 10A and 10B illustrate a means of performing the HOME Account.TM. Priority Asset and Liability Allocation Process (PALAP); FIG. 11 illustrates an the HOME Account.TM. Early Warning Process (EWP); FIG. 12 illustrates the HOME Account.TM. Compliance Routine (HACR); FIG. 13 illustrates an Emergency Liquidation Procedure; FIG. 14A illustrates the HOME Account.TM. Purchase/Payment Procedure; FIG. 14B illustrates the HOME Account.TM. Transaction Verification Procedure; FIG. 14C illustrates the HOME Account.TM. Initial Customer Identification Procedure; FIG. 14D illustrates the HOME Account.TM. Transaction Parameters Evaluation Process; FIG. 14E illustrates the HOME Account.TM. Transaction Time Parameters Implementation Process; FIG. 15A illustrates the functions and operations of the MyNet.TM., SmartNet.TM., SmartCard.TM. and SmartPurse.TM. personal digital assistants; FIG. 15B illustrates the financial functions and operations of the MyNet.TM. system; FIG. 15C illustrates the function and operation of the MyNet.TM. SmarTerminal.TM. device; FIG. 15D illustrates the function and operation of the MyNet.TM. SmartBox.TM. device; FIG. 16 illustrates a block diagram of a MyNet.TM. SmartPurse.TM., SmartWallet.TM. or SmartCard.TM. device; FIG. 17 illustrates a block diagram of the MyNet.TM. communication and computation control unit; FIG. 18 illustrates a block diagram of a MyNet.TM. device; FIG. 19 illustrates a block diagram of the screen panel from an illustrative MyNet.TM. device; FIG. 20 illustrates the combined use of the MyNet.TM. SmartWallet.TM., SmartPurse.TM. or SmartCard.TM., SmarTerminal.TM. and SmartBox.TM. devices; FIG. 21 illustrates a design of a MyNet.TM. SmartBox.TM. device. FIG. 22A, 22B, 22C, 22D illustrates the design of the MyNet.TM. SmartCard.TM. devices. DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT In this section, I begin by describing the basic structure of the preferred embodiment of the invention and then I illustrate the economic impact realized by this system. The HOME Account.TM. mortgage and the MyNet.TM. system are disclosed in detail, including the computer system and data structure of the preferred embodiment. Finally, examples of the different processes that comprise the preferred embodiment of the present invention--the loan origination and servicing processes, the transfer, exchange, savings, investment and borrowing transaction order process, calculation of the Home Owner's Managed Equity Borrowing Power (HOMEPW), the Priority Asset and Liability Allocation Process, the Early Warning Process, and the HOME Account.TM. Compliance Routine (HACR) and the Emergency Liquidation Procedure--are described. Introduction FIG. 1 illustrates the basic structure of the preferred embodiment of the HOME Account.TM. system 10. The home owner's managed equity account, the HOME Account.TM. financial management system, utilizes an improved personal financial analysis, planning and management subsystem 12. This subsystem incorporates automatic or expert sweep features between asset and liability accounts that provide a means of implementing, coordinating, supervising, planning, analyzing, and reporting on investments in an array of assets and liabilities from a variety of credit facilities. The individual account subsystem 14 is the central operating account through which all transfer, exchange, savings, investment, and borrowing transactions are implemented, coordinated, controlled, analyzed and reported to the individual. Through this HOME Account.TM. subsystem the individual is provided with individual reports, updated on a real time basis, as well as provided with portfolio management and financial services, including personal financial planning services. 10 One of the elements of the account subsystem is a special type of mortgage loan, referred to as a Home Owner's Managed Equity (HOME) Mortgage, which is secured by Home Account.TM. assets and asset accounts 16 such as one or more of the individual's homes and other asset accounts. The subsystem also includes Home Account.TM. liabilities and credit facilities 18. Calculation of the total collateral is as follows. The Net Equity Total (NET) 20 is equal to the difference between the sum of all assets 16 and all liabilities 18, excluding the value of the individual's home and mortgage. The NET and the value of the individual's home(s), adjusted by appropriate loan to value ratios, are used as collateral for the HOME Account.TM. mortgage. The account subsystem provides the individual the opportunity to make increased investments in designated asset accounts 16 instead of decreasing the principal of the mortgage. Typically, the designated asset accounts are accounts that are not subject to frequent withdrawal of funds. Thus, these asset accounts may accrue substantial interest and dividend revenue over the term of the mortgage loan and may appreciate in capital value. Alternately, the individual can use the amortization payments to decrease a liability account, typically one which has a high interest rate such as a credit card account. By allowing the individual to invest monies that would be normally used to amortize a conventional mortgage into other asset accounts, the individual may be able to increase her investment income and net worth after payment of taxes, depending upon applicable regulations. Through the system of the invention, the individual can optimize or, at least, improve the allocation of personal assets and liabilities to maximize her net worth. Over a period of time an individual may greatly increase net after-tax income on investments, or savings for retirement by maximizing, for example, the value of a home or homes that can be acquired by an individual given a certain income level. The following example compares a conventional mortgage to the mortgage in the system of the present invention. Through it, I provide a static analysis of the economic impact of the system. Such analysis offers the most simplistic presentation, and it underestimates the economic benefit of the HOME Account.TM. system when deployed in a dynamic context. Assume the following: (1) the initial value of the home is $120,000 and both mortgages are for $100,000 with a term of 30 years, a fixed rate of 10%, and equal monthly amortization payments; (2) at the initiation of the mortgage, the individual's sole asset is the $20,000 required to make a down payment on her home, and the individual's sole source of initial income is her salary; (3) a "pension account", such as a Keough, SEP or 401(K) plan, and an asset account such as an "insurance policy" both produce returns of 8% per annum compounded. No taxes are payable on the "pension account," the "insurance policy" or earnings thereon until distributions are made. The amount invested each year in the pension account and the insurance policy are equal to, respectively, the amount of the required amortization payment of the conventional mortgage and the tax savings generated by the system of the present invention; (4) the taxes paid are based upon the taxes payable for the head of a household filing jointly with three dependents. There are only two tax brackets of 15% and 28%, and a 5% tax surcharge for higher income tax payers; (5) the home is assumed to appreciate at 4% per annum; (6) the individual's net worth is equal to the value of the home, the pension account, and the insurance policy less the amount of the outstanding mortgage; and (7) the individual's annual income is initially $50,000 and increases by 5% each year.
TABLE 1
______________________________________
System of
Conventional
the Present
Year 1 Mortgage Invention
______________________________________
Gross Taxable Income
$50,000 $50,000
Interest Payment $9,833 $10,000
Amortization Payment
$3,334 $0
Outstanding Loan Balance
$96,666 $100,000
Pension Account Investment
$0 $3,334
Pension Account Balance
$0 $3,467
Net Taxable Income
$40,167 $36,666
Taxes Paid $4,375 $3,850
Net Income After Tax
$35,792 $32,816
Disposable Income $32,458 $36,150
Tax Savings Invested
$0 $500
In Insurance
Insurance Policy Balance
$0 $521
Market Value of Home
$120,000 $120,000
Total Disposable Income
$32,458 $36,150
Net Worth $23,334 $23,988
______________________________________
In accordance with the present invention, the $3,334 that would otherwise be used annually to amortize the mortgage is instead contributed to a pension account which is not taxed in that year. Thus the individual's net taxable income is $36,666 as opposed to the $40,167 when the $3,334 is realized as personal income and used to amortize the mortgage. Correspondingly, the taxes paid are lower and the individual's disposable income is greater. In addition, the tax savings of $500 is invested in a tax favored investment such as a single premium whole life insurance policy which yields a balance of $521 at year end. Referring to Table 2, in the second year the individual gains the same benefits using the system of the present invention. The individual now has an insurance investment balance of $1,048 and a pension account balance of $7,226.
TABLE 2
______________________________________
System of
Conventional
the Present
Year 2 Mortgage Invention
______________________________________
Gross Taxable Income
$52,590 $52,500
Interest Payment $9,500 $10,000
Amortization Payment
$3,334 $0
Outstanding Loan Balance
$93,332 $100,000
Pension Account Investment
$0 $3,334
Pension Account Balance
$0 7,226
Net Taxable Income
$43,000 $39,166
Taxes Paid $5,093 $4,225
Net Income After Tax
$37,908 $34,941
Disposable Income $34,574 $38,275
Tax Savings Invested
$0 $500
In Insurance
Insurance Policy Balance
$0 $1,048
Market Value of Home
$124,800 $124,800
Total Disposable Income
$67,031 $74,425
Net Worth $31,468 $33,074
______________________________________
Referring to Table 3, over thirty years the individual's total disposable income is $2,371,379 compared to a disposable income of $2,343,173 for a person in like circumstances who is paying off a 30 year conventional mortgage. The principal amount owed on the home is still $100,000. However, the individual has accrued a pension account balance of $417,577 and an insurance policy balance of $109,023. The economic impact of the system is clearly realized by comparing the net worth of the individual using the system of the present invention and that of a person who purchased a home by taking out a conventional mortgage. Through the system of the present invention, the individual may more than double her net worth.
TABLE 3
______________________________________
System of
Conventional
the Present
Totals After 30 Years
Mortgage Invention
______________________________________
Gross Taxable Income
$3,321,942 $3,321,942
Interest Payment $149,971 $300,000
Amortization Payment
$100,000 $0
Outstanding Loan Balance
$0 $100,000
Pension Account Investment
$0 $100,000
Pension Account Balance
$0 $417,577
Net Taxable Income
$3,171,971 $2,921,922
Taxes Paid $728,798 $650,563
Net Income After Tax
$2,443,173 $2,271,359
Disposable Income $2,343,173 $2,371,379
Tax Savings Invested
$0 $29,806
In Insurance
In Insurance Policy Balance
$0 $109,023
Market Value of Home
$374,235 $374,235
Total Disposable Income
$2,343,173 $2,371,379
Net Worth $374,235 $800,835
______________________________________
The economic advantages of the system are equally dramatic for an individual initially earning $100,000 a year, increasing 5% annually. Using the same assumptions stated in the example but with a house having an initial value of $240,000 and a mortgage for $200,000, the $6,667 that would be used annually to amortize the mortgage is placed in a pension account which is not taxed until distributions are made from the account after the individual retires. As a result, the individual accumulates $785,713 (including interest) in a pension or retirement account. In addition, the individual accumulates an insurance policy investment balance of $256,776. As a result, after 30 years of payments the individual's total disposable income is $3,588,342 which is higher than that of a person making payments on a 30 year conventional mortgage. Her net worth is $1,599,965, which is more than double the $748,486 net worth of an individual under similar financial conditions who has completed payments on a 30 year conventional mortgage. The system of the present invention allows the individual to choose among a wide variety of mortgage amortization options. In the example below, regular payments made to the account are used to amortize the mortgage until a certain pre-specified, loan-to-value ratio (LTV) (mortgage amount/home value amount) has been achieved. Having reached the pre-specified loan to value ratio, the financial institution applies the regular payments hierarchically, first to pay the interest on the mortgage and, second, to invest the remainder of the payment in such investment vehicles as will yield the optimal solution according to an optimization model. This model takes account of risk/return preferences, and personal and general economic and financial projections. As an alternative, the individual can choose to decrease a liability account other than the mortgage. Typically, the liability amount chosen will have a relatively high rate of interest, such as a credit card account balance. Other dynamic aspects of the HOME Account.TM. system maintain a constant loan to value ratio as the value of the home increases over time. By advancing additional loans such as home equity loans secured by the home and one or more other asset accounts, the loan to value ratio is always maintained at a constant percentage. In a preferred embodiment, such percentage is 80%. An illustrative example which compares the relative financial positions over thirty years for a mortgagor holding a conventional mortgage versus a HOME Account.TM. mortgage is provided below. The example comprises a limited number of accounts and assumes certain initial parameters which are summarized below: 1) All mortgages are for a term of 30 years at a fixed rate of 9% per annum. 2) All mortgages are initially for $160,000. 3) In cases where a constant 80% loan-to-value ratio is maintained for liabilities secured against the home, all increases in liabilities against the home are shown as additions to the original mortgage. These increases in borrowing would ordinarily take the form of home equity line of credit borrowing with an interest rate equal to or slightly greater than that of the original mortgage. Alternatively, the individual may move into a more valuable home periodically and increase the amount of the mortgage and the amount of deductible interest expenses. For simplicity it assumed that the interest rates remain constant. 4) At the initiation of the mortgage, the individual's annual earned income is $60,000, and grows at 5% per year. 5) Combined federal and state taxes are paid at the end of each year. 6) The individual's net worth is equal to the current value of all assets including the primary residence, less all liabilities. Table 4 lists the accounts included in this example. Note that these accounts are only intended to illustrate the potential value of the system. In no way should the list provided here be misconstrued as limiting the number or type of asset or liability accounts that may be used in conjunction with the product.
TABLE 4
______________________________________
ACCOUNTS INCLUDED IN MODEL
______________________________________
Assets: Checking
Money Market Deposit Account (MMDA)
Certificate of Deposit (CD)
Individual Retirement Amount (IRA)
Simplified Employee Pension(SEP)
Annuity
Corporate Bond
Mixed Stock and Bond Fund
Equity in Home
Liabilities:
Mortgage
Home Equity Line of Credit (HELOC)
______________________________________
Table 5 summarizes the initial parameters and investment assumptions for the model.
TABLE 5
______________________________________
MODEL ASSUMPTIONS AND PARAMETERS
______________________________________
INCOME AND TAX
Initial Annual Income: $60,000
Growing at: 5% per annum
Taxed at: 27% (includes
state & federal)
Initial Disposable Income:
$20,000
Growing at: 6% per annum
HOME AND MORTGAGE
Initial Value: $200,000
Growing at: 5% per annum
of which Equity (initial) is:
$40,000
of which Mortgage (initial) is:
$160,000
Term of Mortgage: 30 years
INTEREST RATES AND INFLATION
Assets:
Checking: 0.0%
MMDA: 6.0%
CD: 7.0%
IRA: 8.0%
SEP: 8.0%
Annuity: 8.0%
Corporate Bond: 10.5%
Mixed Stock and Bond Fund:
13.0%
Liabilities:
Mortgage: 9.0%
HELOC: 10.5%
Inflation: 4.0%
______________________________________
Tables 6 and 7 outline the investment behavior for two different types of account holders: conservative and capital growth-oriented.
TABLE 6
______________________________________
INDIVIDUAL PROTOTYPE #1: CONSERVATIVE INVESTOR
______________________________________
Conventional Mortgage: Investor invests $2,000 per annum
in an IRA, additional available funds up to $50,000 in MMDA,
and the remainder in a CD.
HOME Account .TM. Mortgage: Investor holds a home mortgage at a
constant 80% loan to value ratio. Amortization payments cease at 80%
loan to value ratio and interest only is paid on the loan. The lesser
of $30,000 or 15% of earnings is invested in a SEP account, and the
remainder is invested in an annuity product.
______________________________________
Table 8 shows the account balances in years 1, 10, 20 and 30 for a conservative investor using a conventional mortgage product, as well as total net worth, retirement savings, taxes paid and disposable income in these years. Table 9 sets forth the mortgage amortization schedule for the conventional mortgage. In year 30, the nominal value of the borrower's total net worth based upon the use of a conventional mortgage is $1,740,111, with the greatest amounts being held in home equity ($864,388) and the CD account($492,332). The home is valued at $864,388 and the mortgage has been fully amortized (balance=$0). Total taxes paid in year 30 on earned income of $246,968 and interest income of $48,478 was $76,385. Cumulative taxes paid over 30 years were $1,060,392.
TABLE 8
__________________________________________________________________________
YEAR 1 10 20 30
__________________________________________________________________________
CURRENT INCOME POSITION
Gross earned income
$60,000
$93,098
$151,617
$246,968
Interest income $307 $3,898 $16,691
$48,478
Total income $60,307
$96,977
$168,308
$295,446
Net after tax income
$48,442
$75,406
$127,853
$221,295
Disposable income ex-model
$20,000
$36,769
$72,331
$142,285
OPENING NET WORTH POSITION
$50,000
$223,237
$650,640
$1,598,099
Assets $219,868
$394,131
$814,940
$1,698,951
Financial Assets $9,868
$68,352
$284,290
$875,723
checking $5,000
$5,000 $5,000
$5,000
account
MMDA $2,788
$33,220
$79,723
$142,772
CD $0 $0 $104,382
$492,332
IRA $2,080
$30,132
$95,185
$235,629
SEP $0 $0 $0
Annuity $0 $0 $0
Corporate $0 $0 $0
bonds
Mixed stock $0 $0 $0
& bond fund
Tangible Assets $210,000
$325,779
$530,660
$864,388
Home value $210,000
$325,779
$530,660
$864,388
Liabilities $158,806
$141,940
$99,541
Credit Card $0 $0 $0
Personal line of credit
$0 $0 $0
HELOC $0 $0 $0
Home mortgage $158,806
$141,940
$99,541
ENDING NET WORTH POSITION
$61,062
$252,191
$715,408
$1,740,111
NET CHANGE IN POSITION
$11,062
$28,953
$64,768
$142,014
__________________________________________________________________________
SUMMARY INFORMATION
YEAR 1 10 20 30 CUM NPV
__________________________________________________________________________
Net after-tax income
$48,442
$75,406
$128,717
$227,340
$3,408,502
$1,092,941
Taxes paid
$11,856
$21,572
$40,774
$76,385
$1,060,392
$355,998
Net worth
$61,062
$252,191
$715,408
$1,740,111 $520,945
Retirement savings
$4,868
$63,352
$273,359
$796,416 $255,372
__________________________________________________________________________
Table 10 outlines the account balances for a conservative investor who uses the HOME Account.TM. mortgage instead of a conventional mortgage. Table 11 sets forth the mortgage amortization schedule for such investor. In year 30, the nominal value of this prototypical borrower's total net worth is $5,945,152, with the greatest amounts being held in the SEP ($1,687,772) and annuity ($3,750,065) accounts. The home is valued at $823,227, with a mortgage of $691,511, which is 80% of the total value of the home. No amortization payments are made. Total taxes paid in year 30 were $42,976, on earned income of $246,968 and interest income of $410,610. Cumulative taxes paid over 30 years were $651,616. The use of the HOME Account.TM. system has increased the nominal value of this same prototypical consumer's net worth by a total of $5,883,848 over a thirty year time period.
TABLE 10
__________________________________________________________________________
YEAR 1 10 20 30
__________________________________________________________________________
CURRENT INCOME POSITION
Gross earned income
$60,000
$93,080
$151,617
$246,968
Interest income $349 $16,804
$93,944
$410,610
Total income $60,349
$109,884
$245,561
$657,578
Net after tax income
$48,472
$94,650
$222,607
$614,602
Disposable income ex-model
$20,000
$36,769
$72,331
$142,285
OPENING NET WORTH POSITION
$50,000
$277,905
$1,259,187
$5,171,147
Assets $221,304
$574,699
$1,858,465
$6,562,504
Financial Assets $11,304
$248,920
$1,327,807
$5,739,276
Checking Account $5,000
$5,000 $5,000
$5,000
MMDA $4,224
$13,054
$30,166
$60,810
CD $0 $0 $0 $0
IRA $2,080
$30,132
$95,085
$235,629
SEP $0 $125,259
$572,411
$1,687,772
Annuity $0 $75,475
$625,045
$3,750,065
Corporate bond $0 $0 $0 $0
Mixed stock $0 $0 $0 $0
& bond fund
Tangible Assets $210,000
$325,779
$530,660
$864,388
Home value $210,000
$325,779
$530,660
$864,388
Liabilities $160,000
$248,213
$404,312
$658,582
Credit Card $0 $0 $0 $0
Personal line $0 $0 $0 $0
of credit
HELOC $0 $0 $0 $0
Home Mortgage $160,000
$248,213
$404,312
$691,511
ENDING NET WORTH POSITION
$61,304
$326,487
$1,454,153
$5,945,152
NET CHANGE IN POSITION
$11,304
$48,581
$194,966
$773,935
__________________________________________________________________________
SUMMARY INFORMATION
YEAR 1 10 20 30 CUM NPV
__________________________________________________________________________
Net after-tax income
$48,472
$94,650
$222,607
$614,602
$6,233,359
$1,998,735
Taxes paid
$11,876
$15,234
$22,954
$42,976
$651,616
$208,942
Net Worth
$61,304
$326,487
$1,454,153
$5,945,152 $1,893,101
Retirement savings
$6,304
__________________________________________________________________________
As shown in Table 12, the conventional mortgage results for the prototypical, capital growth-oriented borrower are the same as for the conservative borrower. However, the benefits of using the HOME Account.TM. system are more dramatic for the growth-oriented borrower. As shown in Table 13, total net worth in year 30 is $11,227,294.
TABLE 12
__________________________________________________________________________
YEAR 1 10 20 30
__________________________________________________________________________
CURRENT INCOME POSITION
Gross earned income
$60,000
$93,098
$151,617
$246,968
Interest income $307 $3,898 $16,691
$48,478
Total income $60,307
$96,977
$168,308
$295,446
Net after tax income
$48,442
$75,406
$127,853
$221,295
Disposable income
ex-model $20,000
$36,769
$72,331
$142,285
OPENING NET WORTH POSITION
$50,000
$223,237
$650,640
$1,598,099
Assets $219,868
$394,131
$814,949
$1,698,951
Financial Assets $9,868
$68,352
$284,290
$875,723
Checking $5,000
$5,000 $5,000
$5,000
account
MMDA $27,888
$33,220
$79,723
$142,772
CD $0 $0 $104,382
$492,332
IRA $2,080
$30,132
$95,185
$235,629
SEP $0 $0 $0 $0
Annuity $0 $0 $0 $0
Corporate $0 $0 $0 $0
bond
Mixed stock & $0 $0 $0 $0
bond fund
Tangible Assets $210,000
$325,779
$530,660
$823,228
Home value $210,000
$325,779
$530,660
$823,228
Liabilities $158,806
$141,940
$99,541
$0
Credit Card $0 $0 $0 $0
Personal line $0 $0 $0 $0
of credit
HELOC $0 $0 $0 $0
Home $158,806
$141,940
$99,541
$0
mortgage
ENDING NET WORTH POSITION
$61,062
$252,191
$715,408
$1,698,951
NET CHANGE IN POSITION
$11,062
$28,953
$64,768
$100,854
__________________________________________________________________________
SUMMARY INFORMATION
YEAR 1 10 20 30 CUM NPV
__________________________________________________________________________
Net after-tax income
$48,442
$75,406
$128,717
$227,340
$3,408,502
$1,092,941
Taxes paid
$11,865
$21,572
$40,774
$76,385
$1,060,392
$355,998
Net worth
$61,062
$252,191
$715,408
$1,698,952 $520,945
Retirement savings
$4,868
$63,352
$273,359
$796,416 $255,372
__________________________________________________________________________
While the examples given here are for individuals earning $60,000 per annum in year 1, the benefits of using the HOME Account.TM. system instead of a conventional mortgage are equally dramatic for other income levels. To implement a system capable of producing these useful improvements in the planning and management of personal financial assets and credit facilities requires considerable change in the present methods for originating, administering, and servicing financial accounts. The present invention details these changes which provide consumers the ability to improve the returns from their personal financial resources while also providing appropriate security for the financial institution. The HOME Account.TM. system Table 14 illustrates the type of asset accounts that an individual may utilize within the system. Some of these may be used as collateral as additional security for the HOME Account.TM. mortgage. Funds that might ordinarily be used to amortize a conventional mortgage may be invested in these asset accounts pursuant to the terms of the HOME Account.TM. system. The asset accounts include insurance and annuities, pension and deferred compensation accounts, banking accounts, mutual funds, brokerage accounts and other asset accounts. Specific forms of each of these types of assets are enumerated in Table 14.
TABLE 14
__________________________________________________________________________
HOME ACCOUNT .TM. ASSET ACCOUNTS
Insurance
Pension and
and Deferred
Banking
Mutual
Brokerage
Other
Annuities
Compensation
Accounts
Funds
Accounts
Assets
__________________________________________________________________________
Life IRA checking
Money
Stock Trusts
Market
Health
401(K) Savings
Equity
Bonds and
Other real
Fixed Income
Property
Accident
SEP NOW Account
Fixed
Options Art and
Casualty Income Antiques
Annuities
Keough Money Inter-
Private Equity
Market national
Commodity
Holdings
Futures
Other ESOP Other Options
Other Derivative
Securities
Other Other Other
__________________________________________________________________________
Table 15 lists several types of liabilities and credit facilities available through the HOME Account.TM. system which include, but are not limited to, margin account borrowing, credit and debit cards, equity access loans and credit facilities, insurance and annuity policy loans, as well as other forms of liabilities and credit facilities. Specific forms of these liabilities and credit facilities are also set forth in Table 15.
TABLE 15
__________________________________________________________________________
HOME ACCOUNT .TM. LIABILITIES AND CREDIT FACILITIES
Equity Access
Insurance and
Account
Credit and
Loans and Credit
Annuity Policy
Borrowing
Debit Cards
Facilities Loans Other
__________________________________________________________________________
Against
Visa .RTM.
Equity Access
Insurance and
Student
Equity Loans and Home
Annuity Policy
Loans/
Securities Equity Line of
Facilities
Automobile
Credit Loans Loans
Against
MasterCard .RTM.
Second Mortgage
Against
Pre-
Fixed Insurance
Existing
Income
Diners Club .RTM. Policies
Debt
Securities
N.A.V. of
American
HOME Account .TM. Loan
Against
Home
Options
Express .RTM.
secured by NET
Annuities
Acquisition
Account Loans
Other
Discover .RTM.
HOME Account .TM. Loan
Other Home
Secured by Account or
Rehabilitation
Other Assets Loans
Automatic
Other Mortgage Loans
Cash
Teller Advance
Machine Derivative
(ATM) card Liabilities
Other Other Other
__________________________________________________________________________
The HOME Account.TM. system provides the individual the flexibility to maximize her financial performance and realize her financial objectives. Through the system of the invention, goods and services may be exchanged, and financial services and products can be automatically received and dispensed with. For example, withdrawals, deposits and transfers may be made; securities, commodities and debt instruments may be purchased, sold and transferred in and out of the account; a wide variety of different types of credit facilities and loans may be advanced to individuals using the HOME Account.TM. system; financial agreements such as insurance and annuity contracts and policies may be purchased or sold within the framework of the HOME Account.TM. system; the agreements, contracts and policies purchased may be transferred to safekeeping accounts monitored within the HOME Account.TM. system; and proceeds from credit facilities and loans received outside the framework of the HOME Account.TM. system may be transferred to the account for use in the acquisition of other assets. Further, the HOME Account.TM. system provides a priority allocation feature which allocates funds from any source such as mortgage payments and additional cash flow. Additional cash flow may result from earned income and interest and dividend revenue on the asset accounts and capital appreciation. The funds are generally placed in an asset account recommended by the system and designated by the individual (e.g., an account having the highest interest rate or potential for capital appreciation). Alternatively, the funds can be utilized to pay off a liability account designated by the individual (e.g., an account charging the highest interest rate). Thus, the allocation feature provides the individual with an additional revenue earning feature that maximizes interest earnings and capital appreciation and/or minimizes interest charges. The system of the present invention can provide the individual a periodic account activity report that clearly displays the details with regard to each transaction conducted within the account during a relevant time period. Such transactions include purchase and sale of goods and services or securities, withdrawal or deposit of cash, acquisition of annuities and insurance policies, and access to one or more types of credit facilities. The individual's earnings can be categorized and summarized according to such categories as interest, dividends, asset disposition, or wages. Every transaction executed on a debit or credit card, through an ATM, a telephone or facsimile based system, a voice recognition system or an automated interactive computer system can be entered in the HOME Account.TM. mortgage monthly statement. In this way, an accurate, on-going list of expenses and the type of expenses can be presented to the individual automatically at the end of every month, and a detailed summary can be presented at year end for assistance in preparing personal tax returns. Through the use of SmartCards.TM., credit or debit cards containing personal information and financial and credit history, an individual can, for example, establish and receive the full benefits of using the HOME Account.TM. system at an ATM or over the phone. Moreover, the cards used in the HOME Account.TM. system may be programmed to pay for charges incurred from debts secured against one or more of the asset accounts. The system of the invention also provides an individual with a variety of standard accounting information which has been used in a business environment but has seldom been appropriately applied to personal financial reporting. For example, the system may provide an individual with statements concerning sources and uses of funds, personal balance sheets indicating the market value of assets and liabilities in each category and illustrating the individual's net worth, a profit and loss report indicating net income for the period and year to date, and an income and expense report comparing actual results to budgeted amounts. Data visualization, animation and multimedia computer hardware and software may be used to demonstrate the effects of an anticipated or an executed transaction upon an individual's financial status. Through the system of the invention, the individual can also access a host of ancillary investment news, information, advice, and counseling. In particular, a individual can access a current news and information data base such as Reuters, Telekurs, Telerate, Dow Jones News Retrieval, "The Source" and Compuserve or other news and data services. For information retrieval, the data base can be accessed directly by the individual in a manner consistent with the appropriate security procedures, by structured query language (SQL), or by means of an expert system that interprets and filters text to retrieve news and other data. Individual users of the HOME Account.TM. system can also receive personal financial planning and analysis assistance by means of an interactive expert computer system and direct consultation with financial planners. In the preferred embodiment of the invention, an expert system provides integrated financial advice consistent with the individual's specific investment objectives and budgetary and risk-related constraints. Recent advances in rule, case and fuzzy logic and model based expert systems in combination with advances in pattern recognition technologies such as neural networks, classifier systems incorporating genetic learning techniques and adductive reasoning tools offer financial institutions the ability to provide intelligent financial advice at a reduced cost and an enhanced level of reliability. Knowledge based systems also offer a convenient and cost effective means of providing integrated planning and analysis services. Such systems are consistent with and utilize techniques derived from modern portfolio theory, capital asset pricing models, and operations research methodologies to help the customer realize her financial objectives. In cases where multiple problem solving techniques are required, an expert system such as a blackboard which incorporates cooperative and competitive expert agents can be used. In this way, each problem solving technique is applied to the appropriate aspect of the problem, and a form of machine learning is utilized. Both stochastic and fuzzy techniques for dynamic multi-objective decision making under uncertainty provide asset/liability and portfolio optimization tools that explicitly integrate considerations of risk and uncertainty in the planning process. The optimization techniques may be coupled with stochastic or other forms of scenario generation models and simulation techniques so that consumers can quickly and easily see the results of alternative asset and liability allocations and sources and uses of funds. Moreover, expert systems offer full interactive explanatory capabilities so that individuals can understand both the advice given and the rationale and reasoning that generated the advice. The interactive nature of the system heightens all potential utilization through interactive television (ITV), Kiosk, and enhanced automated teller machines (ATM). The system may also provide accounting and tax preparation assistance through an interactive computer system with on-line expert computer software assistance of certified public accountants. The individual may also receive tax, estate and legal counseling advice through an interactive expert system with full access to data bases such as LEXIS.RTM. (including all applicable tax code rules and regulations, ERISA regulations and applicable case law, etc.). The MyNet.TM. and HOME Account.TM. Computer System and Data Structure Depending upon the number of accounts in the HOME Account.TM. system and the complexity and size of each account, the system may be implemented on a network of one or more of the following: personal digital assistants, microcomputers, minicomputers, workstations, file servers, computer servers, data base management system servers, mainframe computers, super computers, or massively parallel processing computers. In a preferred embodiment of the invention, the financial institution or a data processing firm providing computing services to the financial institution would maintain a computer system that integrated different types of computer hardware into an open network computing environment. In this type of massively distributed architecture with multiple processors, a single task may employ many resources such as data, processors, and memory transparently throughout the system. All aspects of the parallel distributed processing system may communicate with one another in a variety of forms (e.g., voice, data, multimedia, etc.). Users may utilize multiple processors in such a distributed computing environment. Further, key hardware components of the system are fault-tolerant. The operating system provides for real-time on-line transaction processing and offers a secure environment for multiple users conducting multitasking. Computer intensive activities such as use of expert systems, optimization, imaging and multimedia applications may be performed by separate processors or computer servers. All aspects of the system including hardware and software applications may transparently communicate and share information with each other. In this way, financial institutions may provide convenient access to a full range of financial and information services to both customers and financial institution personnel. Computerized voice recognition techniques allow customers and personnel of financial institutions which enter transactions to have their identity confirmed for security purposes. The system advantageously incorporates recent advances in object oriented design in its operating system, communication protocols, and software design. Workstations by AT&T, NCR, SUN (Sparc Station 2), IBM (RS6000) and others incorporate the advances. These same companies produce file servers of various processing capacities. Parallel processing DBMS servers from Teradata and open system parallel processing servers from NCR (such as the System 3600) offer scalable parallel processing system capacity for expert system support and OLTP. Top End from NCR and Tuxedo/T from AT&T are illustrative transaction processing monitors that may be incorporated into the system. Referring to FIG. 2, the HOME Account.TM. system illustratively comprises a central computer 22, which may include a server, a minicomputer or mainframe connected to a plurality of terminal workstations, personal computers, personal digital assistants (PDAs) such as the MyNet.TM., SmartWallet.TM., SmartPurse.TM., or SmartCard.TM. devices described below, interactive video terminals such as the MyNet.TM. SmartBox.TM. terminal, or minicomputers 24, 26, 28, 30, 32. The central computer 22 stores the HOME Account.TM. mortgage information, and processes and updates the HOME Account.TM. mortgage components. In this type of ubiquitous computing environment, the wide area network of personal workstations, computers or low end minicomputers may be located at branch offices 26, 28 of the financial institution, at the desk of the HOME Account.TM. manager 30, HOME Account.TM. supervisor 32 and at the home of the individual 24. Alternatively, it may be carried by the individual in the form of portable computers or PDAs 34. These computers may act as terminals to one or more central computers or any one of the servers. They can communicate with and share data and applications with all other aspects of the system so as to record and store reports issued by the system during processing. Further, they may perform local processing of information particular to the user of the personal computer workstation. For example, the HOME Account.TM. manager may have a workstation PC at her desk through which she can communicate with all other aspects of the system, receive individual reports from the central computer and perform types of personal financial planning and analysis on the HOME Account.TM. system that need not be performed on the central computer. The computer system 22 comprises a Central Processing Unit (CPU) 36, Random Access Memory (RAM) 38, Read Only Memory (ROM) 40, on-line disk storage 42, off-line disk storage 44 and communication and input/output (I/O) ports 46. CPU 36 illustratively comprises a control unit 37 responsive to programming commands provided by programs stored in computer memories such as RAM 38 and ROM 40, a bus network 39 connecting the computer memories, storage 42, 44 and I/O ports 46 to several registers 41, an arithmetic logic unit (ALU) 43 for processing data temporarily stored in the registers and for returning results to the registers or the network. In response to control signals from the control unit, data retrieved from memories 38, 40 storage 42, 44 and/or I/O ports 46, is operated on by the ALU and the results of the operation are provided to registers 41, memories 38, 40, storage 42, 44 and/or I/O ports 46. The I/O ports 46 provide the means for communication with the individual, networks and other financial systems and services. For example, the system may connect to a network to access on-line computer services 48 such as news or financial information such as stock prices, or communicate with a brokerage firm for the processing of a transaction. The individual may communicate with the system to inquire about the status of her account, check news or financial information, or initiate a transaction. This may be accomplished through a terminal at the financial institution's office 26, 28, or through a personal computer with a modem or an interactive video terminal located in the individual's home 50. Such devices include a MyNet.TM. SmartBox.TM. device, a portable computer, a point of sale terminal linked to the network such as MyNet.TM. SmarTerminal.TM. device or an intelligent telecommunication device such as a PDA (e.g., MyNet.TM. SmartWallet.TM., SmartPurse.TM. or SmartCard.TM. devices). Other banks, financial service institutions and insurance companies 52 may communicate with the HOME Account.TM. system, for example, to transfer or verify asset and liability holdings. The individual account information is stored in a database on the distributed multiprocessing computer system. Although the system is not limited in the types of databases that can be utilized, relational databases such as those offered by Synbase, Informix, Oracle, IBM (DB2), and Focus and object oriented data base management systems (OODBMS) may be implemented. Access to the databases may be made through direct SQL calls or through remote or stored procedure calls. The system of the present invention includes a number of hardware and software features incorporated in devices such as the MyNet.TM. SmartWallet.TM., SmartPurse.TM., SmarTerminal.TM., SmartBox.TM. and SmartCard.TM. devices. The MyNet.TM. system uses a novel, unique combination of these features for the purpose of exchange, investment, and borrowing which provides great value and convenience to consumers and providers of financial services. Key design features of each MyNet.TM. instrument in the embodiment of the MyNet.TM. System are described, but not limited, as follows. The preferred embodiment of the present invention contains one or more microprocessors such as the AT&T Hobbit, the Motorola Dragon, the ARM risc chip or the Intel/VLSI Polar which, for example, includes a RAM cache, graphics bus, power management controller, PCMCIA controller, integrated process controller, write back cache, and a video controller. Other application specific integrated circuits (ASICs) may be added to each of the MyNet.TM. instruments. In order to make the present invention mobile in the preferred embodiment of the invention, the MyNet.TM. System may be wireless. Accordingly, in the preferred embodiment of the present invention each of the MyNet.TM. instruments is equipped with wireless send and receive capability in and between the instrument itself and corresponding hardware (e.g., printers, interactive TV, desktop computers, etc.) to form LAN, WAN, and effectuate electronic funds transfers. Advantageously, the wireless capability is achieved using either radio or infrared communication technology. With the use of PCMCIA and AT-IDE Slots to accommodate flash memory solid state mass storage systems, individual application specific cards with execute in place capability can enhance the individual user's access to other MyNet.TM. System compatible software. To simplify use of the MyNet.TM. instruments, the individual may use touch or pen based active matrix flat screens and multifunction pen with write, erase, cursor, light beam, and infrared capabilities. An individual may also effectuate a charge and receive confirmation of the authorization to further simplify use of the MyNet.TM. instruments. The preferred embodiment of the invention contains Phone/Fax/Modem capability and a digital video camera and screen with a send and receive terminal. This allows the individual to use the SmartWallet.TM. and SmartPurse.TM. devices as wireless or wired communication devices to send and receive voice, data, video, documents, live financial quotations, and the like. A printer may be used to print checks, script or even, with the requisite regulatory approval, currency in amounts above preauthorized limits, after authorization through the MyNet.TM. System. The preferred embodiment also incorporates a cellular antenna to link with digital cellular mobile telephone systems and a conventional radio antenna to receive and send radio signals such as those broadcast through RAM Mobile Data broadcast service and Ardis wireless packet data networks. These may be linked to McCaw Cellular Corp's or other cellular networks. Communication links of this nature allow users of the MyNet.TM. System to gain the cumulative geographic coverage of the interconnected networks. Various security features may be used in the preferred embodiment of the invention to ensure security for both individuals and financial institutions. These include the on-line verification of a MyNet.TM. user's voice print, video prints, and periodic required use of a thumb print. For data transmission one may use public/private key encryption techniques, RSA Data Encryption, Open Collaboration Environment CT2 CAI, and/or Fast Ellipital Encryption. These security features can be repeatedly employed (before every transaction or at the time of each request for information) and at preset intermittent intervals in order to prevent unauthorized use of the MyNet.TM. instruments. Handwriting recognition, voice recognition, fingerprint recognition, and optical character recognition may also be incorporated in the MyNet.TM. instruments and used as a security measure to insure the protection of the individual. The security features of the MyNet.TM. System instruments are of particular importance due to their transparent ease of use coupled with the robust nature of the protection offered. In 1987, more than 330 billion financial transactions were conducted without counting the number of requests for financial information. Accordingly, it is essential that the MyN | ||||||