System, method and computer program product for online financial products trading

Abstract

An online centralized financial products exchange system. The invention is a system, method and computer program product that creates a "marketplace" for end-to-end financial products life cycle transactions. More particularly, the invention provides a centralized exchange system for the trading of loans. The system includes a plurality of Web servers for receiving and providing loan information from and to subscribers on several Web clients and a database server for searching the pre-set rules to match potential buyers with sellers. The system also includes a database for storing information relating to negotiations (i.e., bidding) for the sale of loans and for storing pre-set rules for pre-registered buyers and sellers. The system further includes a database and server for storing risk/return information that is made available to subscribers for analysis.

Claims

What is claimed is:

1. A centralized system for trading financial products in the secondary market, wherein the system is capable of being accessed by a plurality of subscriber, the system comprising:

means for receiving loan information for a plurality of loans in a loan pool from a first subscriber;

means for storing said loan information in a database;

means for receiving selection inputs from a second subscriber for said loans in said loan pool, wherein said selection inputs indicate which of the loans in said loan pool said second subscriber wishes to purchase, whereby said system allows trading of loans in the secondary market and

means for allowing said first subscriber to accept said selection inputs entered by said second subscriber, wherein a trade is processed when said selection inputs are accepted.

2. The system of claim 1, wherein said first subscriber is selected from the group consisting of at least one of the following: a borrower, a broker, a mortgage bank correspondent, a servicing company, and a mortgage bank investor.

3. The system of claim 1, further comprising:

means for receiving selection inputs from said first subscriber in order to create said loan pool.

4. The system of claim 3, wherein said means for receiving selection inputs from said first subscriber, comprises:

means for searching said loan information using loan criteria; and

means for selecting individual loans to include in said loan pool based on said loan information.

5. The system of claim 1, wherein said means for receiving selection inputs from said second subscriber comprises:

means for accepting, declining or suspending each loan in said loan pool; and

means for submitting a bid on those loans in said loan pool that are accepted.

6. The system of claim 5, wherein said means for receiving selection inputs from said second subscriber further comprises:

means for notifying said first subscriber of said bid.

7. The system of claim 5, further comprising:

means for searching said loan information for each loan in said loan pool based on loan criteria.

8. The system of claim 7, wherein said loan criteria is selected from a group consisting of at least one of the following: FICO score, combined loan-to-value ratio, income-to-debt ratio, interest rate, loan amount, term of loan, appraisal value of property, monthly income of borrower, type of loan, points, purchase balance, original balance, and state.

9. The system of claim 1, further comprising:

means for registering at least one rule corresponding to said second subscriber's purchasing criteria.

10. The system of claim 9, further comprising:

means for reviewing said second subscriber's rule(s).

11. The system of claim 9, further comprising:

means for matching said second subscriber's rule(s) to said loan information;

and

means for notifying said second subscriber when said loan information for one or more of said loans in said loan pool matches said second subscriber's rule(s).

12. The system of claim 11, wherein said notifying means notifies said subscriber by at least one of the following devices: pager, electronic mail, cellular telephone, personal digital assistant, and telephone.

13. The system of claim 1, further comprising:

means for collecting and analyzing trade data to create an index.

14. The system of claim 13, wherein said trade data are selected from the group consisting of at least one of the following: volume of trades, weighted average coupon, average combined loan-to-value ratio, average FICO score, average term of loan, average rate, and average debt ratio.

15. The system of claim 13, wherein said index is used to develop a subscriber's rule(s).

16. The system of claim 1, further comprising:

means for forwarding loan information for a loan to a servicing company to service said loan.

17. The system of claim 1, further comprising:

means for trading in a mortgage-backed security that is backed by at least one loan pool.

18. A method for trading financial products in the secondary market on a network, wherein the network is capable of being accessed by a plurality of subscribers, the method comprising the steps of:

(a) receiving loan information for a plurality of loans in a loan pool from a first subscriber;

(b) storing said loan information in a database;

(c) receiving selection inputs from a second subscriber for said loans in said loan pool, wherein said selection inputs indicate which of the loans in said loan pool said second subscriber wishes to purchase, whereby the method allows trading of loans in the secondary market; and

(d) allowing said first subscriber to accept said selection inputs entered by said second subscriber, wherein a trade is processed when said selection inputs are accepted.

19. The method of claim 18, wherein said first subscriber is selected from the group consisting of at least one of the following: a borrower, a broker, a mortgage bank correspondent, a servicing company, and a mortgage bank investor.

20. The method of claim 18, further comprising the step of:

(e) receiving selection inputs from said first subscriber in order to create said loan pool.

21. The method of claim 20, wherein said step (e) comprises:

(i) searching said loan information using loan criteria; and

(ii) selecting individual loans to include in said loan pool based on said loan information.

22. The method of claim 18, wherein said step (c) comprises the steps of:

(i) accepting, declining or suspending each loan in said loan pool; and

(ii) submitting a bid on those loans in said loan pool that are accepted.

23. The method of claim 22, wherein said step (c) further comprises the step of:

(iii) notifying said first subscriber of said bid.

24. The method of claim 18, further comprising the step of:

(e) searching said loan information for each loan in said loan pool based on loan criteria.

25. The method of claim 24, wherein said loan criteria is selected from a group consisting of at least one of the following: FICO score, combined loan-to-value ratio, income-to-debt ratio, interest rate, loan amount, term of loan, appraisal value of property, monthly income of borrower, type of loan, points, purchase balance, original balance, and state.

26. The method of claim 18, further comprising the step of:

(e) registering at least one rule corresponding to said second subscriber's purchasing criteria.

27. The method of claim 26, further comprising the step of:

(f) reviewing said second subscriber's rule(s).

28. The method of claim 26, further comprising the steps of:

(f) matching said second subscriber's rule(s) to said loan information; and

(g) notifying said second subscriber when said loan information for one or more of said loans in said loan pool matches said second subscriber's rule(s).

29. The method of claim 28, wherein said second subscriber is notified by at least one of the following devices: pager, electronic mail, cellular telephone, personal digital assistant, and telephone.

30. The method of claim 18, further comprising the step of:

(e) collecting and analyzing trade data to create an index.

31. The method of claim 30, wherein said trade data are selected from the group consisting of at least one of the following: volume of trades, weighted average coupon, average combined loan-to-value ratio, average FICO score, average term of loan, average rate, and average debt ratio.

32. The method of claim 30, wherein said index is used to develop a subscriber's rule(s).

33. The method of claim 18, further comprising the step of:

(e) forwarding loan information for a loan to a servicing company to service said loan.

34. The method of claim 18, further comprising the step of:

(e) trading in a mortgage-backed security that is backed by at least one loan pool.

35. A computer program product comprising:

control logic stored therein for causing a computer to allow trading financial products in the secondary market, wherein a plurality of subscribers use said computer program product, said control logic comprising:

first computer readable program code means for causing a first computer to receive loan information for a plurality of loans in a loan pool from a first subscriber;

second computer readable program code means for causing said first computer to store said loan information in a database;

third computer readable program code means for causing said first computer to receive selection inputs from a second subscriber for said loans in said loan pool, wherein said selection inputs indicate which of the loans in said loan pool said second subscriber wishes to purchase whereby said system lows trading of loans in the secondary market; and

fourth computer readable program code means for causing said first computer to allow said first subscriber to accept said selection inputs entered by said second subscriber, wherein a trade is processed when said selection inputs are accepted.

36. A program storage device readable by a machine, tangibly embodying a program of instructions executable by the machine to perform method steps of enabling trading of a loan pool in the secondary market, said method steps comprising:

(a) receiving loan information for a plurality of loans in a loan pool from a first subscriber;

(b) storing said loan information in a database;

(c) receiving selection inputs from a second subscriber for said loans in said loan pool, wherein said selection inputs indicate which of the loans in said loan pool said second subscriber wishes to purchase, whereby the method allows trading of loans in the secondary market; and

(d) allowing said first subscriber to accept said selection inputs entered by said second subscriber, wherein a trade is processed when said selection inputs are accepted.

Description

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates generally to a centralized exchange system for creating a marketplace to buy and sell financial products, and more particularly to a centralized exchange system for the trading loans.

2. Related Art

Over the past several years, there has been an explosion of computers, and thus people, connected to the global Internet and the World-Wide Web (WWW). This increase of connectivity has allowed computer users to access various types of information, disseminate information, and be exposed to electronic commerce activities, all with a great degree of freedom. Electronic commerce includes large corporations, small businesses, individual entrepreneurs, organizations, and the like, who offer their information, products, and/or services to people all over the world via the Internet.

Financial products are one of the types of products available through electronic commerce activities. Consumer loan products, one example of financial products available through electronic commerce, are typically divided into two categories--conforming (or conventional) loans and non-conforming (or non-conventional) loans. Conforming loans are low risk loans and include traditional primary residence mortgage loans to consumers with good credit histories and loans to consumers who qualify under certain government-backed loan programs (e.g., Federal Housing Administration (FHA) or the Veterans Administration (VA)).

In contrast to conforming loans, non-conforming loans pose a higher risk for lenders than conforming loans. Non-conforming loans include loans to consumers with bad credit (e.g., due to bankruptcy or foreclosure), non-income verification loans (e.g., loans to consumers who have been self-employed for less than 2 years), loans for non-owner occupied properties, loans for non-conventional properties, some commercial (business) loans, and High-Loan-To-Value (HLTV) loans.

For example, HLTV loans are typically obtained by consumers, who by using equity in their homes as collateral, consolidate other (e.g., credit card) debt. These types of loans involve a lender who loans a consumer an amount of money in excess of 100% of the consumer's equity in their home. For example, an "HLTV 125" loan refers to consumer who obtains a loan for 125% of the value of their home.

In more detail, an "HTLV 125" loan would work as follows. A consumer who owns a home valued at $100,000, and has a first mortgage on that home for 80% of the value (i.e., $80,000), would have $20,000 in equity. If the consumer has credit card debts and wanted to borrow money to consolidate these debts, a lender may offer the consumer an HLTV loan. In one scenario, the consumer may be able to obtain a loan for the $20,000 equity in their home, and borrow against an additional 25% of the value of the home (i.e., another $25,000) for a total loan of $45,000. As such, there would now be loans covering 125% of the value of the consumer's home.

Under the current tax laws, this type of loan provides the consumer (i.e., borrower) with a tax advantage because a certain amount of the interest paid on this loan can be deducted on the borrower's income tax returns. In contrast, any interest paid on credit card debt cannot be deducted. Further, the interest rate that a borrower may be able to obtain for an HLTV loan is often less than the interest rate charged by most credit card companies. Thus, consolidating by obtaining an HTLV loan, lowers the borrower's monthly payments and allows the borrower to repay debts owed more quickly. As such, these types of loans are often attractive to consumers.

Non-conforming loans generally are also attractive to lenders because the market will often allow lenders to charge a higher interest rate than on a conventional first mortgage loan (although this interests rate is still lower than that charged by credit card companies). Because lenders are offering the borrower a loan for more than the value of the collateral (e.g., the borrower's home), however, there is a certain amount of risk involved in making such loans. As such, lenders have developed certain rules (based on criteria, such as underwriting criteria) to minimize their risks (i.e., exposure) when making non-conforming loans.

An example criteria used by lenders include identifying potential borrowers in a certain income bracket. This income bracket must be high enough so that there is small likelihood of default, but not so high that the borrower is likely to prepay the loan--thereby decreasing the amount of interest collected by the lender over the life of the loan.

Another criteria often considered by lenders making non-conforming loans is the borrower's credit rating. A consumer's credit rating is an indication of their ability to pay outstanding debts. Credit rating companies, such as Trans Union Corporation of Chicago, Ill., Experian, Inc. (formerly TRW) of Orange, Calif., and Equifax, Inc. of Atlanta, Ga., collect certain information on individual consumers and assign each a credit rating based on this information.

One method of obtaining a credit rating is known as a "FICO score" which is based on a mathematical model developed by Fair, Isaac, and Company, Inc. of San Rafael, Calif. A FICO score is based on many factors including how a consumer pays their bills, outstanding debt, how long a consumer has had credit, types of credit a consumer has, and how many times a consumer has recently applied for or opened new lines of credit.

Non-conforming loans are typically made to people with relative high FICO scores, known as "A" borrowers. "A" borrowers usually either have some equity in their homes but have a large amount of debt, or they have little or no equity in their homes. "A" borrowers have credit ratings which indicate that they will be able to repay a loan.

Loans can also be extended to "sub-prime" borrowers--individuals with "B" or "C" credit ratings. These subprime borrowers have relatively lower credit scores. Loans in this case may be the borrower's first mortgage on a home, e.g., for which the borrower has a risky credit rating, but they have collateral, such as a home, which has not been previously mortgaged. Similarly, loans can also be extended to borrowers who are seeking a "jumbo" loan--a loan of $225,000 or more.

All of these types of loans, because of the various risks associated with each, command a higher interest rate than conventional loans.

Referring to FIG. 1, a time line of a typical loan life cycle 100 is shown. The first phase in the loan life cycle 100 is a marketing phase 104. In marketing phase 104, marketing companies target certain potential borrowers to receive advertisements offering loans. For example, potential borrowers may be targeted by geographic region (e.g., by zip code or area code). This advertising can be distributed through many sources, such as via telephone advertising campaigns, via mass mailings, or via the Internet.

The second phase in the loan life cycle 100 is a loan origination phase 108. In loan origination phase 108, the potential borrower contacts the lender (e.g., mortgage bank), or a broker working with a lender, by phone or electronic mail, to request a loan. Usually, this first contact between the potential borrower and the lender is telephonic, as call centers are typically set up to handle responses to the advertising campaigns. After being switched away from the call intake portion of the call center, certain information is collected from the consumer by a loan agent. The loan agent also works with the potential borrower to agree on a loan amount, interest, points, duration or term of the loan and other features of the loan. The loan agent then sends this information to a loan processor and a loan underwriter for approval. The loan processor processes the paperwork necessary for completing the loan and the underwriter makes sure the underwriting guidelines are met, and validates the interest rate and points assigned by the loan agent. If these validated terms are acceptable to both the lender and borrower, the loan is approved, and the loan agent then works with the loan closer to finalize the loan, issue a check, and forward it to the borrower.

The loan may then enter a third phase, known as a loan wholesaling phase 112. Once the lender has made the loan, they often try to sell the loan to a mortgage banker. Alternatively, a loan may be transferred within a company to a different department that handles the wholesaling of loans. Lenders may flow loans to mortgage bankers (i.e., pass a single loan at a time), or bulk loans to mortgage bankers (i.e., pass several loans referred to as a "pool" of loans). The mortgage banker then separately pools the purchased loans and advertises the loan pools to look for investors. The role of the mortgage banker is to buy loans from the loan origination organization (e.g., mortgage bank) or lender, and then pool them in such a way to make them attractive to investors. Mortgage bankers have also developed rules that they use to decide which loans to purchase and how to pool them for sale. These rules are based on many of the same criteria used by the lender in determining whether to originate a loan to the borrower. Similarly, loan origination organizations or lenders consider the rules of the mortgage bankers when making loans, so that their loans look attractive to the mortgage bankers.

The mortgage banker pools the loans and advertises to investors who may be interested in purchasing a pool of loans. For example, a typical pool may consist of 300 loans with an estimated total value of $30 million or may consist of 3000 loans with an estimated total value of $300 million. The potential investor, typically a bank, securitization company or another mortgage banker, will review the information for each loan in the pool and either accept, decline, or reserve its decision for each loan in the pool. Then, the investor may send a revised pool back to the mortgage banker with an offering price to buy the revised pool. The mortgage banker then may add other loans to the pool and resend the pool to the investor for review. This negotiation (or bidding) continues until a sale is made or rejected. The rejected loans may be used already in other pools or may be used directly for securitization, as discussed below.

Once an investor purchases or otherwise acquires a pool of loans, the loans may enter a fourth phase, referred to as a securitization phase 116. In securitization phase 116, the investor groups several pools of loans together into a larger pool, and uses them collectively as collateral to back securities (i.e., mortgage-backed securities such as bonds). These larger pools can then be offered for sale to buyers on the secondary market. Typically, these groups of loan pools are valued in the range of $50 million-$1 billion. Because the company that purchases the loan pools and uses them to back securities is personally responsible, there is a great deal of risk involved in these type of transactions.

Naturally, investors of the loan pools have developed certain rules for evaluating the suitability of the loans for securitization. However, the mortgage bankers' rules used for grouping certain loans together in a pool may be different from the rules used by the investor in deciding which loans it would like to purchase in a pool and the rules used buy lenders in making the underlying loans in the first place. For example, the mortgage banker in an attempt to sell the low risk and high risk loans together, may want to group together loans made to borrowers with high FICO scores with loans made to borrowers with lower FICO scores. However, the investor may have rules which do not allow the purchase of any pool with a loan made to a borrower having a FICO score less than a predetermined amount. As a result, negotiations between the mortgage banker and the investor must occur in order to decide on a pool and a price that is suitable to both parties. It is important to note that although the rules are devised as guidelines for buying and selling loans, these rules may be disregarded or altered on a case-by-case basis. Further, each entity described above may frequently change its rules based on market conditions and other relevant factors.

The process for selling loans or loan pools and then negotiating about the sale is currently ad hoc. Generally, an investor will learn about a pool by calling a particular seller to see what loans or loan pools are available. The seller will then send the investor information about the loan or loan pool generally on a spreadsheet, such as Microsoft.RTM. Excel. The investor may reconfigure the information into their preferred format on the spreadsheet, delete or mark those loans from the pool that they do not wish to purchase, and send the spreadsheet with the revised pool back to the seller. This process is often clumsy and inefficient, requiring a lot of manual data re-entry between the parties.

Further, there is no mechanism, apart from person-to-person (e.g., face-to-face or over the telephone) interaction, for determining what loans or pools are for sale, what rules are being used to pool the loans, and what rules are being used by the investors to determine whether to buy certain loans.

The investors service the loans, either themselves or through a separate servicing firm, and create a mortgage-backed security based on the assets (i.e., future income stream) of the pooled loans. The mortgage-backed security has an assigned interest rate based on the future capital of the pools of loans that are being securitized. The mortgage-backed securities are then generally sold, either directly or through brokerage companies, to buyers in the open market.

The mortgage-backed securities are always securitized by the pool of loans, so that the loans can never be transferred again throughout the remainder of their life cycle 100. Prepayment of loans is a problem, because if a loan is prepaid the mortgage-backed security is no longer backed by all of its original underlying assets. Companies that securitize these loans have attempted to predict the amount of prepayment of loans in the pools and work this figure into a yield, however many companies have failed because they could not accurately predict the rate of prepayment or default. There are no metrics on which these investors can base a prediction of rates of pre-payment, or also default or delinquency.

The loan also follows a separate track with the consumer, concurrently with the first track described above. As shown in FIG. 1, once the loan is approved and the money is sent to the borrower, the loan enters a servicing phase 120. Servicing phase 120 consists of a servicing company sending a coupon book to the borrower which indicates when monthly payments are due and the amount of the payment. If the borrower is late on a payment, the servicer will contact the borrower to discuss the missed or late payment. This servicing is very methodical, in that servicing companies will often have pre-set time period for certain actions. Such as, placing a telephone call to a delinquent borrower after his payment is 10 days late, and writing a letter to the delinquent borrower after his payment is 30 days late, and so on.

If the borrower becomes insolvent or delinquent in their payments, the loan enters the next phase, referred to as a claims phase 124. In claims phase 124 the servicing company may enter a claim against the borrower in a bankruptcy proceeding, or file a lawsuit in court to foreclose on the mortgaged property or secure an order to garnish the borrower's wages. Because non-conforming loans are often second mortgages and are typically made for more than the value of the underlying collateral, lenders are reluctant to enter this phase, because it generally results in the lender losing money. In particular, when a non-conforming loan is used to back a security, and the borrower defaults on the loan, the collateral used to back the security disappears. This has, in the past, lead to the demise of many of these types of securitization companies that back securities with non-conforming loan pools.

On both tracks, the loan then enters a final phase, referred to as a loan termination phase 128. Generally the loan enters loan termination phase 128 when the fixed term of the loan expires (e.g., a 30 year fixed loan) and/or the loan has been fully paid (i.e., prepayment).

Therefore, in view of the above, what is needed is a system, method and computer program product for an online (i.e., Internet, intranet, or extranet) system for buying and selling financial products. Such a system would create a "marketplace" in which investors (i.e., buyers) and sellers of these financial products could go to place their products for sale, to ascertain what financial products are for sale, and to determine what the price is in the "marketplace" for certain types of products. Further, what is needed is a system, method and computer program product that archives all of the selection and pricing information for access by its users.

SUMMARY OF THE INVENTION

The present invention is a system, method, and computer program product for the online trading of financial products that meets the needs identified above. In particular, the present invention provides a centralized "marketplace" for trading of loan products and for end-to-end loan handling, i.e., over the lifetime of a loan. As such, the present invention provides a resource for archived information for subscribers (e.g., marketing companies, lenders, mortgage bankers, investors, brokerage companies, etc.). In this way, every individual involved in the financial products industry can access information stored in the centralized "marketplace" system of the present invention to aid in completing transactions relating to the financial products.

One advantage of the present invention is that it provides a centralized "marketplace" for trading in certain types of financial products.

Another advantage of the present invention is that it reduces the amount of manual re-entry of data when negotiating for the sale of a financial product, such as a loan or loan pool. Furthermore, all data, including data relating to the financial product and trading data, are archived to allow for risk management analysis.

Another advantage of the present invention is that it archives information about the financial products and bidding information to be used to determine a market price for the financial products.

Another advantage of the present invention is that it archives rules which are pre-set by investors, so that the right types of loans are originated, thereby creating an efficiency in loan origination and resale.

Further features and advantages of the invention as well as the structure and operation of various embodiments of the present invention are described in detail below with reference to the accompanying drawings.

BRIEF DESCRIPTION OF THE FIGURES

The features and advantages of the present invention will become more apparent from the detailed description set forth below when taken in conjunction with the drawings in which like reference numbers indicate identical or functionally similar elements. Additionally, the left-most digit of a reference number identifies the drawing in which the reference number first appears.

FIG. 1 is a time line showing the typical life cycle of a loan;

FIGS. 2A and 2B are block diagram illustrating the system architecture of an embodiment of the present invention, showing network connectivity among the various components;

FIG. 3 is a high level block diagram showing the interfaces that occur during the operation of the exchange system according to an embodiment of the present invention;

FIG. 4 is a block diagram illustrating the software architecture of an embodiment of the present invention, showing communications among the various components;

FIG. 5 is a flowchart showing the data flow between the centralized exchange system and a marketing company, according to an embodiment of the present invention;

FIG. 6 is a flowchart showing the data flow between the centralized exchange system and a loan origination company, according to an embodiment of the present invention;

FIGS. 7-14 are exemplary graphical user interfaces according to an embodiment of the present invention;

FIGS. 15A-15D are flowcharts showing the buying and selling of loans using the centralized exchange system, according to an embodiment of the present invention;

FIG. 16 is a flowchart showing the interaction between the centralized exchange system and a trust company, according to an embodiment of the present invention;

FIG. 17 is a flowchart showing the data flow between the centralized exchange system and a servicing company, according to an embodiment of the present invention;

FGS. 18 and 19 are exemplary graphical user interfaces according to an embodiment of the present invention; and

FIG. 20 is a block diagram of an exemplary computer system useful for implementing the present invention.

FIGS. 21A-21C and 22-24 are exemplary graphical user interfaces to enable a subscriber to engage in trading according to an embodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

Table of Contents

I. Overview

II. Criteria for Evaluating a Loan

III. System Architecture

IV. Secure System Interfaces

V. Software/Hardware Architecture

VI. System Operation

A. Marketing

B. Loan Origination

C. Exchange System

D. Trust (Due Diligence)

E. Servicing

F. Securitization

G. Brokerage

H. Credit Rating

I. Risk/Return

VII. Environment

VIII. Conclusion

I. Overview

The present invention relates to a system, method, and computer program product for analyzing, valuating, buying and selling financial products, such as loans. The loans contemplated for use with the present invention include, for example, conforming and non-conforming loans, such as residential mortgage loans, multi-family mortgage loans, commercial mortgage loans, consumer and commercial installment loans, small business loans, student loans and vehicle/boat/plane loans. Although the embodiment described herein relates specifically to loans, it would be apparent to one skilled in the relevant art(s) that the present invention could also be used for analyzing, valuating, buying and selling a variety of other financial products, including, for example: (1) revolving lines of credit, such as credit card accounts and home equity lines of credit, (2) annuities, (3) insurance products, and (4) consumer and commercial assets, such as certificates of deposit.

In an embodiment of the present invention, an organization provides a centralized exchange system for loans. Subscribers to the system (i.e., borrowers, brokers, correspondents, mortgage bankers, servicing companies, investors, capital markets brokers, etc.) may engage in trading that optimizes the types of loans being originated by lowering the risk associated with loan origination and maximizes return on each loan.

The centralized exchange system of the present invention creates a marketplace for trading in financial products, such as loan products. What is meant by marketplace, is a central service that each entity in the above-described loan life cycle can use for handling of loans. This type of system is referred to as an "end-to-end" system, because it is developed for each entity from the beginning to the end of the loan life cycle 100.

Some of the features provided by the system of the present invention include loan origination, loan pooling, publishing loans and loan pools for sale, and negotiating for sale of loans or loan pools. Further, the centralized exchange system provides connection to certain service providers for automatic institution of due diligence investigations and/or loan servicing. Still further, the centralized exchange system archives trading data, servicing data and other loan data to provide risk-return information based on certain criteria (e.g., future loan value index, pricing model, and historical valuation data). Still further, the centralized exchange system stores subscribers' trading rules and can notify a subscriber when loan products complying with its rules are published. The centralized exchange system may also notify subscribers (e.g, by electronic mail, pager, telephone, cellular telephone, personal digital assistant, etc.) when an offer for a loan or loan pool has been made and/or when an offer has been accepted or rejected.

Such a system could allow industry participants such as borrowers, brokers, correspondents, mortgage bankers, servicing companies, investors, and capital markets brokers to intelligently originate and trade in loans not only to hedge against risks, but also to speculate for profit.

The centralized exchange system provider organization supplies an infrastructure, secure protocol, and facilities so that subscribers may utilize the network to address their trading needs. As detailed above with reference to FIG. 1, the present invention addresses the trading needs of the subscribers summarized in Table 1 below. The subscriber names presented in Table 1 are given by way of example, and, as will be apparent to one skilled in the relevant art(s), may vary according to industry custom.

    TABLE 1
                          DESCRIPTION
    SUBSCRIBER            (PHASE OF LIFE CYCLE 100)
    Marketing Company     Entities that advertise lenders' financial
                          products to Consumers (phase 104).
    Borrower/Consumer     Person (homeowner) who desires to obtain a
                          loan (phases 104, 108, 120, and 128).
    Broker                Individuals hired on an agent basis who
                          bring together borrowers and lenders (phase
                          108).
    Mortgage Bank         Banks or other lending entities that market
    Correspondent         and originate loans directly to consumers.
                          They typically then sell the individual loans
                          or loan pools (phases 104-108).
    Servicing Company     Entities that, on behalf of owner of the loan,
                          monitor and collect monthly payments from
                          the Borrower, and may institute proceedings
                          against borrower who are delinquent or in
                          default (phases 120-124).
    Mortgage Banker       Entities that purchase loans(in flow or in
                          bulk) from different Lenders and then
                          separately pool them together for resale
                          (phase 112).
    Investor              Entities that purchase loan pools from
                          wholesalers and group the pools together to
                          create mortgage-backed securities (i.e.,
                          securitization), which are then typically sold
                          in the secondary market (phases 116).
    Capital Markets       Entities that act on an agent basis to bring
    Broker/Brokerage Company together Investors and Buyers (phase 116)
    Securities Credit Rating Entities that, typically on behalf of brokerage
    Agency                companies, rate (i.e., determine
                          overcapitalization) the mortgage-backed
                          securities created by Investors (phase 116).
    Buyer                 Individuals or Entities that purchase (and
                          trade) mortgage-backed securities (phase
                          116).

                   TABLE 2
                   LOAN VALUATION CRITERIA
                   Loan Amount
                   FICO
                   Appraisal Value of Property
                   Total Monthly Income
                   Term of Loan
                   Type of Loan
                   Interest Rate
                   Points
                   Loan/Value Ratio
                   Income/Debt Ratio
                   Purchase Balance
                   Original Balance
                   State
                   Section 32

    TABLE 3
    DATABASE      DESCRIPTION
    Trade Data    Contains results data, pool negotiating (bidding) data,
    203a, 203b    and financial date (e.g., prime rate, Dow Jones
                  Industrial Average, etc.)
    Trading       Contains rules used by subscribers to identify loans
    Criteria      and loan packages to purchase. An example rule may
    Archive       be:
    204a,204b     [ (FICO > 400) AND (Appraisal_Value_of_Property >
                  $300,000) ]
    Securitization Contains mortgage-backed securities (e.g, bond) data
    205           and criteria
    Pool Data Org Contains data of published pools for each of N
    N 221, 222    mortgage bankers that subscribes to exchange system
                  200.
    Wholesale     Contains rules used by mortgage bankers to identify
    Criteria      loans and loan pools to purchase.
    Archive 223
    Origination   Contains origination data uploaded from origination
    Archive 224   entities subscribing to exchange system 200.
    Marketing 231 Contains list of contacts (i.e., people), and
                  correlations to financial products likely to be or
                  actually owned, and financial products they are likely
                  to purchase.
    Origination   Contains information gathered from borrowers and
    Data 244      stored locally at each loan origination subsystem 240
    Origination   Contains rules used by loan originators to identify
    Criteria 245  consumers whom to approve loans to.
    Servicing 251 Contains data relevant to servicing of loans such as
                  payment history, default, call (enforcement) history,
                  etc.

• Inventors
  Levine, David A.; Levine, Monica L.; Minton, Gabriel D.; Poletti, Jon; Sondregger, Dean;
• Assignee
  Ultraprise Corporation (Dulles, VA)
• Published
  May-15-2001
• Current US Classes:
  705/36
  705/37
  705/38
• Application #
  270837
• International Classes
  G06F 017/60; G06G 007/52
• Field of Search
  705/38 705/37 705/36 705/35 705/67 705/68 705/69 705/41 369/918 369/918.1 369/948.3 235/379
• Examiner
  Stamber; Eric W.
• Agent
  Sterne, Kessler, Goldstein & Fox P.L.L.C.
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