Method for managing financial accounts by a preferred allocation of funds among accounts5852811Abstract A personal financial program is disclosed incorporating means of implementing, coordinating, supervising, planning, analyzing and reporting upon investments in an array of asset accounts and liability accounts within a client account. Through a prioritization function, the client specifies his financial objectives, his risk preference, a forecast of economic and financial variables, and budgetary constraints. The prioritization function suggests to the client a portfolio of asset and liability accounts that may be credited and debited to form investments and borrowings to best realize his financial objectives over a defined time horizon. In the preferred embodiment a central structural element of the financial account is a liability account secured by the client's home and one or more asset accounts. Client funds that would normally be used to amortize the mortgage may be alternatively used according to a prioritized allocation of funds to asset accounts and liability accounts. The client account is imbalanced if the client's borrowing power is less than the minimum borrowing power specified by the financial institution. 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 initiates a liquidation procedure. Claims I claim: Description BACKGROUND OF THE INVENTION
TABLE 1
______________________________________
System of
Conventional
the Present
Year 1 Mortgage Invention
______________________________________
Gross Taxable Income
$50,000 $50,000
Interest Payments $9,833 $10,000
Amortization Payments
$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 In Insurance
$0 $500
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
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Table 1 is illustrative of the client's financial statement for the first year under a conventional mortgage and under the system of the present invention. 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 client'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 client'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 that yields a balance of $521 at year end.
TABLE 2
______________________________________
System of
Conventional
the Present
Year 2 Mortgage Invention
______________________________________
Gross Taxable Income
$52,500 $52,500
Interest Payments $9,500 $10,000
Amortization Payments
$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 In Insurance
$0 $500
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 $33,111
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Referring to Table 2, in the second year the client gains the same benefits using the system of the present invention. The client now has an insurance investment balance of $1,048 and a pension account balance of $7,226.
TABLE 3
______________________________________
System of
Conventional
the Present
Totals After 30 Years
Mortgage Invention
______________________________________
Gross Taxable Income
$3,321,942
$3,321,942
Interest Payments $149,971 $300,000
Amortization Payments
$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 In Insurance
$0 $29,806
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 $374,238 $800,835
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Referring to Table 3, over thirty years the client'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 $200,000. However, the client 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 client 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 client may more than double his net worth. The economic advantages of the system are proportionately dramatic for a client initially earning $100,000 a year, increasing 5% annually. Using the same assumptions stated in the example but with 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 client retires. As a result, the client accumulates $785,713 (including interest) in a pension or retirement account. In addition, the client accumulates an insurance policy investment balance of $256,776. As a result, after 30 years of payments the client's total disposable income is $3,588,342, as opposed to a disposable income of $3,405,383 for a person making payments on a 30 year conventional mortgage, and his net worth is $1,599,965, which is more than double the $748,486 net worth of an individual under similar financial conditions after completion of payments on a 30 year conventional mortgage. The system of the present invention also allows the client to choose among a wide variety of mortgage amortization options. In the example shown below, regular payments made to the account are used to amortize the mortgage until a certain pre-specified, loan-to-value ratio ($ mortgage/$home value) has been achieved. Having reached the pre-specified loan to value ratio (LTV), 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 which takes into account risk/return preference, and personal and general economic and financial projections. Furthermore, the client can choose to decrease a liability account other than the mortgage, typically one which has a relatively high rate of interest, such as a credit card account balance. Other dynamic aspects of the HOME.TM. Account provide for the maintenance of 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 so that the loan to value ratio is always maintained at a constant percentage such as 80%. An illustrative example which compares the relative financial positions over thirty years for a conventional mortgage user and a HOME Account client is given 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 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 borrowings with an interest rate equal to or slightly greater than that of the original mortgage. Alternatively, the client 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 client's annual earned income is $60,000 growing thereafter at 5% per year. 5) Combined federal and state taxes are paid at the end of each year. 6) The client'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 of the present invention to a consumer. 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
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ACCOUNTS INCLUDED IN MODEL
______________________________________
Assets:
Checking
Money Market Deposit Account (MMDA)
Certificate of Deposit (CD)
Individual Retirement Account (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
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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):
$40,000
of which Mortgage (initial):
$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%
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Table 6 and 7 outline the investment behavior for two different types of account holders: conservative and capital growth-oriented.
TABLE 6
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CLIENT PROTOTYPE #1 PROFILE
CLIENT 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: 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.
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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 said 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 $1,698,952, with the greatest amounts being held in home equity ($823,228) and the CD account($492,332). The home is valued at $832,228 and the mortgage has been fully amortized (balance=$0). Total taxes paid in year 30 were $76,385, on earned income of $246,968 and interest income of $48,478. Cumulative taxes paid over 30 years were $1,060,392.
TABLE 8
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CLIENT PROTOTYPE #1 - CONSERVATIVE INVESTOR
__________________________________________________________________________
CONCISE STATEMENT OF FINANCIAL POSITION - CONVENTIONAL PRODUCT
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 $60,367
$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
$56,000
$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 account $5,000
$5,000
$5,000
$5,000
MMDA $2,788
$33,220
$79,723
$142,772
CD $0 $0 $194,382
$492,332
IRA $2,080
$30,132
$95,185
$235,629
SEP $0 $0 $0 $0
Annuity $0 $0 $0 $0
Corporate bond $0 $0 $0 $0
Mixed stock & bond fund
$0 $0 $0 $0
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 of credit
$0 $0 $0 $0
HELOC $0 $0 $0 $0
Home mortgage $158,806
$141,940
$99,541
$0
ENDING NET WORTH POSITION
$61,062
$252,191
$715,408
$1,698,951
NET CHANGE IN POSITION
$11,062
$28,953
$164,768
$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
$46,774
$76,385
$1,060,392
$355,998
Networth $61,062
$252,191
$715,408
$1,698,952 $520,945
Retirement savings
$4,868
$63,352
$273,359
$796,416 $255,372
__________________________________________________________________________
Table 10 outlines the same account balances for a conservative investor who uses the HOME.TM. Account instead of a conventional mortgage. Table 11 set forth the mortgage amortization schedule for a HOME Account Mortgage in the same amount. In year 30, the nominal value of this prototypical borrower's total net worth is $5,903,922, with the greatest amounts being held in the SEP ($1,687,772) and annuity ($3,750,065) accounts. The home is valued at $823,228, with a mortgage of $658,582, 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 has increased the nominal value of this same prototypical consumer's net worth by a total of $4,204,970 over a thirty year time period in comparison to the results using a conventional mortgage.
TABLE 10
__________________________________________________________________________
CLIENT PROTOTYPE #1 - CONSERVATIVE INVESTOR
__________________________________________________________________________
CONCISE STATEMENT OF FINANCIAL POSITION - HOME .TM. ACCOUNT
YEAR
1 10 20 30
__________________________________________________________________________
CURRENT INCOME POSITION
Gross earned income
$60,090
$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
$277,965
$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
$95,185
$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 & bond fund
$0 $0 $0 $0
Tangible Assets $210,000
$325,779
$530,660
$823,227
Home value $210,000
$325,779
$530,660
$823,227
-Liabilities $160,000
$248,213
$404,312
$658,582
Credit Card $0 $0 $0 $0
Personal line of credit
$0 $0 $0 $0
HELOC $0 $0 $0 $0
Home mortgage $160,000
$248,213
$404,312
$658,582
ENDING NET WORTH POSITION
$61,304
$326,487
$1,454,153
$5,903,992
NET CHANGE IN POSITION
$11,304
$48,581
$194,966
$732,775
__________________________________________________________________________
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
$5,903,922 $1,893,101
Retirement savings
$6,304
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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, for the growth-oriented borrower the benefits of using the HOPE Account are more dramatic. As shown in Table 13, total net worth in year 30 is $11,227,294.
TABLE 12
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CLIENT PROTOTYPE #2 - GROWTH-ORIENTED INVESTOR
__________________________________________________________________________
CONCISE STATEMENT OF FINANCIAL POSITION - CONVENTIONAL PRODUCT
YEAR
1 10 20 30
__________________________________________________________________________
CURRENT INCOME POSITION
Gross earned income
$60,000
$93,998
$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 account $5,000
$5,000
$5,000
$5,000
MMDA $2,7888
$33,220
$79,723
$142,772
CD $0 $0 $104,382
$492,332
IRA $2,080
$30,132
$95,185
$235,829
SEP $0 $0 $0 $0
Annuity $0 $0 $0 $0
Corporate bond $0 $0 $0 $0
Mixed stock & bond fund
$0 $0 $0 $0
Tangible Assets $210,000
$325,779
$530,660
$823,228
Home value $210,009
$325,779
$530,660
$823,228
-Liabilities $158,806
$141,940
$99,541
$0
Credit Card $0 $0 $0 $0
Personal line of credit
$0 $0 $0 $0
HELOC $0 $0 $0 $0
Home mortgage $158,806
$141,949
$99,541
$0
ENDING NET WORTH PDSITION
$61,062
$252,191
$715,408
$1,698,951
NET CHANGE IN POSITION
$11,062
$28,953
$164,768
$100,854
__________________________________________________________________________
SUMMARY
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
Networth $61,062
$252,191
$715,408
$1,698,952 $520,945
Retirement savings
$4,868
$63,352
$273,359
$796,516 $255,372
__________________________________________________________________________
While the examples given here are for individuals earning $60,000 per annum in year 1, the benefits of using the HOPE Account instead of a conventional mortgage are equally dramatic for other income levels. To implement such 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 techniques for accomplishing these changes to provide consumers the ability to improve the returns from the management of their personal financial resources while also providing appropriate security for the financial institution. The HOME Account Table 14 illustrates the type of asset accounts that a client may have within the system some of which may be collateralized to form additional security for the HOME 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. The asset accounts include insurance and annuities (I), pension and deferred compensation accounts (II), banking accounts (III), mutual funds (IV), brokerage accounts (V) and other asset accounts (VI). Specific forms of each of these types of assets are enumerated in Table 14.
TABLE 14
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HOME ASSET ACCOUNTS
I II
Insurance
Pension and
III IV V VI
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
Casuaity Income Antiques
Annuities
Keogh Money Inter-
Commodity
Private
Market national
Futures
Equity
Holdings
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 which include, but are not limited to, margin account borrowing, (I), credit and debit cards (II), equity access loans and credit facilities (III), insurance and annuity policy loans (IV), as well as other forms of liabilities and credit facilities (V). Specific forms of these. liabilities and credit facilities are also set forth in Table 15.
TABLE 15
__________________________________________________________________________
HOME LIABILITIES AND CREDIT FACILITIES
I III IV
Margin
II Equity Access
Insurance and
Account
Credit and
Loans and Credit
Annuity Policy
V
Borrowing
Debit Cards
Facilities
Loans Other
__________________________________________________________________________
Against
Visa .TM.
Equity Access
Insurance and
Student
Equity Loans and Home
Annuity Policy
Loans
Securities Equity Line of
Facilities
Credit Loans Automobile
Loans
Against
MasterCard .TM.
Second Mortgage
Against Loans
Vacation Insurance
Fixed Policies
Income
Securities
N.A.V. of
Diners Club .TM.
HOME Loan secured
Against Pre-
Options by NET Annuities
Existing
Account Debt
Other American
HOME Loan Secured
Other Home
Express .TM.
by Account or Acquisition
Other Assets Loan
Discover .TM.
Other Mortgage Loans
Home
Rehabilitation
Loan
Automatic
Other Cash Advance
Teller Machine
(ATM) card Derivative
Liabilities
Other Other
__________________________________________________________________________
The HOME Account provides the client the flexibility to maximize his financial performance and realize his financial objectives. Through the system of the invention, financial services and products can be automatically received and dispensed within the HOME Account framework. 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; financial agreements such as insurance and annuity contracts and policies may be purchased or sold within the framework of the HOME Account; the agreements, contracts and policies purchased may be transferred to safekeeping accounts monitored within the HOME Account; a wide variety of different types of credit facilities and loans may be advanced to clients of the HOME Account; and proceeds from credit facilities and loans received outside the framework of the HOME Account may be transferred to the account for use in the acquisition of other assets. Further, the HOME Account provides a priority allocation feature which allocates funds from mortgage payments and additional cash flow such as funds from earned income and interest and dividend revenue on the asset accounts and capital appreciation. The funds are generally placed in an asset recommended by the system of the present invention and designated by the client (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 client (e.g., an account charging the highest interest rate). Thus, the allocation feature provides the client 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 client 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 as a purchase and sale of securities, withdrawals or deposit of cash, acquisition of annuities and insurance policies, and access to one or more types of credit facilities. The client'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 fax system, interpreted by a voice recognition system or by a client's automated interactive computer system can be entered in the HOME Account monthly statement so that an accurate on-going list of expenses and the type of expenses can be presented automatically to the client 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 smart cards or credit or debit cards containing data concerning his personal information and financial and credit history, a client can, for example, establish and receive the full benefits of using a HOME Account at an ATM or over the phone. Moreover the cards used by the HOME Account clients may be programmed to pay for charges on the card by incurring secured indebtedness against one or more of the asset accounts. The system of the invention also provides a client with a variety of standard accounting information which has commonly been used in a business environment but has seldom been appropriately applied to personal financial reporting. For example, the system may provide a client with sources and uses of funds statements, personal balance sheets indicating the market value of assets and liabilities in each category and illustrating the client'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 methods and multimedia computer hardware and software may be used to demonstrate the effects upon an individual client's financial status of an anticipated or an executed transaction. Through the system of the invention, the client can also access a host of ancillary investment news, information, advice, and counseling. In particular, a client can access a current news and information data base such as Reuters, Telekurs, Telerate, Dow Jones News Retrieval.TM., The Source.TM. and Compuserve.TM. or other news and data services. For information retrieval the data base can be accessed directly by the client in a manner consistent with the appropriate security procedures or it can be accessed by structured query language (SQL) calls or by means of an expert system that interprets text to retrieve news and other data that are of particular interest to the client. Clients of the HOME Account 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 to the client consistent with achieving the client's specific investment objectives subject to budgetary and risk-related constraints. Recent advances in rule, case, fuzzy logic and model based expert systems together with advances in such pattern recognition technologies as neural networks, classifier systems incorporating genetic learning techniques and abductive reasoning tools offer financial institutions the ability to provide their clients with intelligent financial advice at a reduced cost and an enhanced level of reliability over reliance upon account managers. Knowledge based systems offer a convenient and cost effective means of providing integrated planning and analysis services to clients that are consistent with and utilize techniques derived from modern portfolio theory, capital asset pricing models, and operations research methodologies to help the customer realize his financial objectives. In cases where multiple problem solving techniques are required to best realize a client's objectives, a blackboard or other type of expert system is used to properly apply each problem solving technique to the appropriate aspect of the problem and incorporate a form of machine learning. Both stochastic and fuzzy techniques for dynamic multiobjective decision making under uncertainty provide portfolio optimization tools that explicitly integrate considerations of risk and uncertainty in the planning process. Moreover, expert systems incorporating these problem solving methodologies offer full interactive explanatory capabilities so that clients can not only understand the advice given but also the rationate and the reasoning that generated the advice. Through the system of the prevent invention, the client may also receive accounting and tax preparation assistance through an interactive computer system with on-line expert computer software assistance with the opportunity to utilize certified public accountants. The client may also receive tax, estate and legal counseling advice through an interactive expert system that has full access to data bases offering information retrieval from data providers such as LEXIS.TM. including all applicable tax code rules and regulations, ERISA regulations and applicable case law, etc. The HOME Account Computer System and Data Structure Depending upon the number of HOME Accounts and the complexity and size of each account, the system may be implemented on a microcomputer, minicomputer, workstation, file server, compute server, data base management system server, mainframe computer, super computer, massively parallel processing computer or any system offering a combination of one or more of these computers. In the 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 a variety of 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-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 (i.e. voice, data, multimedia etc.). 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. Users may utilize multiple processors in such a distributed computing environment. Compute intensive activities such as use of expert systems, optimization, imaging and multimedia applications may be performed by separate processors or compute 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 customers and the financial institutions' personnel. Computerized voice recognition techniques allow customers and the personnel of the financial institution to enter transaction orders into the system and 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. Examples of such system components include workstations by AT&T, NCR, SUN (Sparc Station 2), NeXT, IBM (RS6000) and others. 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 system illustratively comprises a central computer 220, which may be a server, a minicomputer or mainframe connected to a plurality of terminal workstations, personal computers (PC) or minicomputers 222, 224, 226, 228, 230. The central computer 200 stores the HOME Account information as well as processes and updates the HOME Account components. The personal workstations, computers or low-end minicomputers may be located at branch offices 224, 226 of the financial institution, at the desk of the HOME Account manager 228, HOME Account supervisor 230 and at the home of the client 222. These computers may act as a terminal to the central computer or any one of the servers and 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 and may perform local processing of information particular to the user of the personal computer workstation. For example, the HOME Account manager may have a workstation PC at his desk through which the manager can communicate with all other aspects of the system, receive client reports from the central computer and perform types of personal financial planning and analysis on the HOME Account that need not typically be performed on the central computer. The computer system 220 comprises a Central Processing Unit (CPU) 232, Random Access Memory (RAM) 234, Read Only Memory (ROM) 236, on-line 238 and off-line 240 storage and communication and input/output (I/O) ports 242. The I/O ports 242 provide the means for communications with the client, networks and other financial systems and services 242. For example, the system may connect to a network to access news or financial information such as stock prices, or communicate with a brokerage firm for the processing of a transaction. The client, through a terminal at the financial institution's office 224, 226, through a personal computer with a modem located in the client's home 222, or through an intelligent telecommunication device may communicate with the system to inquire about the status of his account, check news or financial information, or initiate a transaction. Other banks, financial service institutions and insurance companies 246 may communicate with the HOME Account's system in order to transfer asset and liability holdings or verify asset or liability holdings. The client account information is stored in a database on the distributed multiprocessing computer system. The system is not limited in the types of databases that can be utilized although 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 procedure calls or stored procedure calls. Referring to FIG. 3, the client data illustratively are organized in the database into four areas or files indexed according to HOME Account client numbers 250: general and personal information of the client 252, HOME asset information 254, HOME liability and credit account information 256, HOME account balances, account limitations and constraints 258. The HOME Account general and personal information file 252 which is usually referred to as a customer information file contains personal and financial information on each client such as name 260, home and work address 262, home and work telephone number 264 and past credit history 266. The HOME Account asset information file 254 contains all the data regarding each client asset and asset account which is part of the HOME Account. Each asset is described according to a variety of data including the type of asset 255, asset identifying information 257 (e.g. policy numbers, bank and bank account number), how it can be accessed 259 (e.g. bank or financial institution routing and transit numbers), the current value of the asset 261 and projected future value of the asset 263. The HOME Account liability and credit account file contains the type of information similar to the account asset file including the type of liability 267, identifying information on the liability 268, liability access 270, date of origination of the liability 272, the liability balance 274 and the interest rate 276 on the liability. The HOME Account balance and account limitations files 258 contains HOME balance information such as asset totals 278, liability totals 280 and account limitations such as minimum imposed balances 282, minimum imposed net cash flow 284, the imposed minimum HOME borrowing power (MIM) 286 and financial ratios 288. The HOME Account can perform periodic screenings of what may be referred to as the customer information file or the client data files for the purpose of accessing client related information or marketing additional financial products to the existing clients. The account automatically reviews the client databases for specific client information including the client's assets, liabilities, credit history, cash flow, age, etc. The account then matches the client's particular personal and financial situation to either new financial products being offered or financial products that the client is not presently using which would improve the client's financial well-being. If a match is found, the client is notified of his eligibility to utilize the financial product(s) and apprised of the potential benefits and advised of any risks associated with the product(s). In this way, the client receives direct benefits from the financial product; and the financial institution offering the product receives additional revenue from fees on the products and increased liquidity from a relatively low cost marketing effort. The HOME Account also performs screenings of the client's account files to detect any irregularities in account transactions which might be an indication of fraudulent tampering with the account by an outside source. For example, if there is a significant increase in the number of charges placed on a credit card in a short time period, or if multiple transactions are originating from a region other than the client's home region, the account's screening process will automatically detect the irregularities, alert the account manager and then alert the client. The screening process is accomplished in various ways. For example, it may be performed by reviewing all recent transactions within a prespecified amount of time, and comparing these transactions with past account transactions to detect any irregularities in the client's transaction patterns. This screening process can be performed continuously, prior to and/or immediately after transactions or in predetermined periodic intervals. The HOME account database also contains information on property appraisals, loan payments, and if necessary, features the capability to monitor foreclosed property. Through the integration of image processing and multimedia technologies, visual, verbal and animated video records of property condition, account transactions and documents can be monitored and controlled. The data structure allocates files for storage of system status reports 290 that are issued during processing to the client and the financial institution's departments and personnel. This information is stored for access and reference by the party to whom the information is reported. For example, a file is provided for each client for the storage of system reports issued to that client 292. The reports are then accessible only by that particular client. The HOME Account manager 294 and supervisor 296 may also have files allocated to them as well as the various departments, e.g., the mortgage servicing department 298 in the financial institution. These files, in a fully distributed system, may be located on any of the system processors or data storage devices. Although the HOME Account is described as comprising four main areas or files organized according to the HOME client number, many other data structures may be realized within the scope of the present invention. For example, the data may be further distributed into a multiplicity of sub-files indexed according to predetermined data such as client number and type of asset, or the data may be organized in a data structure that is less distributed. As noted previously, the central element of the HOME Account is the HOME Mortgage. Referring to Table 16 the HOME Mortgage can be described by various elemental categories including: forms of collateral (I), legal documentation (II) and financial terms and conditions (III).
TABLE 16
______________________________________
HOME MORTGAGE ELEMENTS
Potential II III
Forms of Legal Terms &
Collateral Documentation Conditions
______________________________________
Home(s) HOME Mortgage Minimum Principal
Master Agreement
Outstanding Balance
Insurance and
Individual Secured
Required Interest
Annuities Collateral Payments
Agreements
Pension and Cross-collateral-
Amortization
Deferred ization Agreements
Payments or
Compensation Alternative
Plans Investments
Banking Individual Asset
Fees & Expenses
Accounts Account Agreements
Mutual Funds
Other Term of Mortgage
Forecast Future
Income or Cash
Flow
Other Assets Other
______________________________________
The acceptable forms of collateral illustratively include: one or more homes that which would be valued for purposes of collateralization at a percentage of their appraised fair market value, insurance and annuity policies that may be valued for purposes of collateralization at their net fair market or cash redemption value, various forms of pension and deferred compensation plans and accounts that may be valued for purposes of collateralization at their net fair market value, banking accounts including checking and savings accounts to be valued for purposes of collateralization at their net account balances, mutual funds that may be valued for purposes of collateralization at the net fair market redemption value and other forms of alternate collateral. The required legal documentation for the HOME mortgage may include, but is not limited to, a HOME mortgage agreement, individual security agreements for each of the various assets that are used as collateral for the HOME mortgage, cross-collateralization agreements that allow the value of various asset accounts to be used to support borrowings or indebtedness and individual asset account agreements which include the contractual agreements establishing and setting forth the operations of the asset accounts. The nature of the derivative financial service products based upon the system of the present invention may require additional documentation to implement the contractual agreements between the financial institution and the customer. Moreover the specifications of the agreements may be altered during the term of the financial service product to reflect any alterations in the nature of the collateral or other component parts of the product. For example the documents for the derivative version of the system of the present invention offered to current mortgage holders may differ from those documents used to implement the system of the present invention for new home owners. The financial terms and conditions of the HOME mortgage which are substantially new and different from those of conventional financial service products including mortgages include: a continuous real time determination of the permissible outstanding balance of the mortgage which takes into consideration the value of all assets used to collateralize the mortgage; interest payments which can be either in the form of fixed, floating, or a combination of fixed and floating interest payments as determined by the client and lending institution; the variable amortization payments, if any, which may, in the preferred embodiment of the invention, constitute zero amortization payments in exchange for the client making alternative investments in asset accounts of his choice, or paying off or reducing liability accounts of his choice; the prioritization of the allocation of funds to the asset accounts and the liability accounts utilized to maximize the client's financial position during the term or life of the mortgage which would in many instances be of a term of 10 to more than 30 years but could be different dependent upon agreements reached by the lending institution and the client; required fees and expenses for the initiation and continuation of the HOME Mortgage including origination fees, servicing fees, closing costs and prepayment penalties; and other terms and conditions as may be required. Mortgage Origination and Servicing--Overview Referring to FIG. 4, once the financial service customer completes the loan documentation 192, the loan origination documentation is checked 194 and the HOME Mortgage is approved or rejected 195, 196. If the mortgage is approved, the scheduled interest and principal payments are determined 197 and input into the mortgage service system so that continuous real time verification and cross-verification can be performed to detect any irregularities or delinquencies in payments 198. The payments can comprise fixed or variable amortization. In servicing the HOME Mortgage, the outstanding balances of the HOME Mortgage are processed in real time and compared to the total value of Home Owners Mortgageable Equity (hereinafter called "HOMEquity") 199. (HOMEquity equals NET plus the net fair market appraisal value for purposes of collateralization of the client's home(s)). The adequacy or inadequacy of security for the HOME Mortgage 200, must be determined. The required interest payments received compared to those scheduled at the time of the origination of the HOME Mortgage 201 and as subsequently revised, must be calculated. The updated required amount of principal amortization payments or additional alternative investment required must be calculated and compared to the amounts received 202. Updated-documentation on asset and liability holdings and valuations must be generated 203. In addition, other variables must be periodically calculated and verified to satisfy applicable regulatory authorities and to prevent unauthorized transfers or creation of debit balances in excess of applicable credit limits. Internal, regulatory and client reporting is an integral part of the system of the present invention. Internally these reports must be updated on a real time basis although the client and regulatory authorities may only receive a report on a periodic basis and when there is a discrepancy or delinquency. As illustrated in FIG. 5, daily updated HOME Mortgage balances must be compared to the HOMEquity value 208 and reported. Likewise, updated schedules of interest received versus interest payments scheduled 210 must be reported. Also updated reports of the amount of principal outstanding 212 must be reported. The client's line of credit and NET 214 must be calculated and reported. Advantageously, the system of the present invention incorporates the use of data visualization and virtual reality techniques in its reporting and document preparation and presentation. Documents incorporating sound and video are automatically generated at the end of reporting periods and transmitted to clients though any one of several selected media. Reports are also generated for the applicable federal, state and local authorities in compliance with banking, insurance, ERISA and securities laws 216. Mortgage Origination FIG. 6 depicts in greater detail the HOME Account mortgage origination process of FIG. 4 which is initiated when the HOME Account client requests a HOME Mortgage 400. The HOME mortgage application process illustrated assumes that the client already has a HOME Account and has access to the HOME central computer through a computer terminal or terminal-emulating computer. A HOME mortgage application menu and the HOME mortgage master menu are presented to the client 402. These two menus include a number of chapters or sub-menus which closely resemble information that must be completed to originate a standard mortgage and others that are uniquely attributable to the HOME Mortgage. The client reports his qualifications, including financial and employment background, assets owned, anticipated income, etc. 404. This information is standard to almost all mortgage applications. Much of the data may be automatically inputted from the system data structure into his application insofar as the HOME account data files already have information on all assets and liabilities, anticipated income, etc. as part of his HOME Account. The Priority Asset and Liability Allocation Process (PALAP) is then initiated 406. As will be explained subsequently in conjunction with FIG. 10, PALAP utilizes a type of programming function to perform personal financial planning and analysis and establish a system of priorities for the allocation of funds to asset accounts and liability accounts for each HOME Account. Through PALAP, the system generates for the client a suggested Priority Asset and Liability Allocation Order (PALAO) 408 which can be an improved or an optimal PALAO for the client. Typically, the PALAO is based on earning the most revenue for the client over a defined time period. However, the client may select one or more alternate financial objectives such as maximizing net worth at retirement. Accordingly, accounts are often prioritized on the basis of economic factors such as interest rates, dividends, forecast returns, or commissions. The client or the financial institution may also request that the accounts be prioritized based on intangibles such as a desire to maintain a certain level of liquidity or simply sentimental value. Financial statements based on the recommended PALAO are provided to the client to illustrate the effect of the proposed financial plan. These statements may incorporate data visualization techniques and the system of the present invention offers an expert system with interactive explanatory features. A client's PALAO provides the guidelines by which the financial institution governs, regulates and monitors the client account. Updated PALAOs together with financial projections based upon those updated PALAOs may be made available to the client for his review and subsequent selection during the remainder of the mortgage application process. The client is then presented a menu from which the client may select (1) his desired level of borrowing secured by his home or homes and one or more other assets 412 and (2) other complementary financial service products. This level of borrowing may be of a declining amount over a period of time (i.e., with a certain amount of amortization), it may be for a fixed amount (i.e., non-amortizing), it may be of an increasing amount provided that the client will be able to support the additional amounts of borrowing in the future by increasing the amount of collateral in the account through appreciation of assets currently held or by adding additional assets or income to his HOME Account over time, or it may vary over time according to what is in the customer's best economic interest and consistent with the financial institution's credit standards. The level of borrowing as well as the other financial service products selected may be subject to satisfaction of certain conditions, (i.e., income levels, levels of appreciation or depreciation of capital assets, etc.). The available borrowing alternatives are presented and cross-referenced with PALAO alternatives 414 so that the client can observe how the different levels of borrowings affect his financial planning. Once the client selects the level of borrowing, the selection must be entered into the central computer and verified 416. The client is then shown various proposed collateral selections from a submenu featuring those items 418. In addition to the home or homes that the applicant desires to use as collateral, he may name a number of other asset accounts by cross-referencing to PALAO alternatives 420. In addition to selecting the asset accounts to be used as collateral, the client must indicate and verify the proposed priority of collateralization of those assets. For example, after the home(s) is used to collateralize the borrowing, the client may wish the next type of collateral to be used to be money market account balances or bank account balances since they have a high loan to value ratio and do not offer low interest cost borrowing as is the case associated with loans against single premium whole life insurance policies and annuities. The client selects the assets to be used as collateral and the priority of collateralization, enters the selections into the central computer and verifies the selections 422. A client is also presented a menu of potential interest and amortization schedules 424 which includes the priority of funding amortization payments and interest expenses on the proposed mortgage. The client may cross reference to the PALAO alternatives and the level of borrowings selected 426 to see the financial impact the various selections have or the integrated expert system may do this for the client automatically. By cross referencing to the PALAO alternatives a variety of options are presented, and the client selects one of the options and verifies the interest and amortization schedules and the priority of funding amortization payments and interest expenses 428. The client is also presented with a menu of potential term structures of the HOME Mortgage 430. The effects on the account of the different structures may be seen by cross referencing to the PALAO alternatives 432. The client enters the term structure selected and verifies his selection 434. The client is then presented a menu of potential Priority Investment and Borrowing Orders (PIBO) 436 that are integrally interrelated to the PALAO presented in block 408. These alternatives may also be cross referenced to PALAO 438 to see the overall effect the different PIBO selections have on the client's account. Once the PIBO is entered and verified 440, the client selects, enters and verifies the PALAO 410. It should be noted that once the PIBO has been selected, the PALAO will be approximately determined because the PIBO and PALAO selected must be mutually compatible. In practice, the client switches back and forth among the various menu screens and cross references the alternative PALAOs suggested in order to select a financial package that best meets his needs and objectives or this action may be taken by the expert system of the HOME Account. This cross-referencing may be assisted through the use of an expert system with data visualization and multimedia tools that help the client see the results of selecting different options. Over time the above referenced steps for determining the appropriate PALAO and PIBO and for originating a HOME Mortgage may be periodically redone to assist the client in selecting the financial alternatives that will best help the individual realize his financial objectives given changing economic and financial circumstances. Completion of the preceding steps finalizes the application process and the completed application is submitted to the HOME Mortgage Loan Department (HMLD) for review 442. If the application is approved by the loan department, the necessary documents are submitted for review by the HOME Legal and Regulatory Compliance Department (HLRCD) 444. An integrated loan evaluator that functions as a decision support tool assists the above-referenced departments with this task. Upon approval, the Cash Flow and Collateral Monitoring and Forecasting Processes (CFMFP and CMFP) are activated so that any interim changes in either the value of the proposed collateral or the projected cash flow of the client can be determined prior to the time of closing of the mortgage 446. Conditional approval of the mortgage is then reported to the client, the client's account manager, the mortgage loan origination department and the mortgage servicing department 448. A report documenting the approval is also issued to the HOME Account history file. If no adverse change is indicated by the cash flow monitoring and forecasting processes prior to closing, the HOME Mortgage will be closed 450 and reports of its closing will be issued 452. If the mortgage application is rejected either by the loan department or the legal and regulatory compliance department, then approval is denied and a report is issued to the involved parties stating the reason for its denial. The client is then given the opportunity to make an alternate mortgage application at a later date if desired 454 and to acquire one or more other financial service products. When the mortgage is originated and its terms and conditions are set, the primary responsibility for the ongoing process of monitoring and servicing of the HOME Mortgage belongs to the HOME Mortgage Servicing Department (HMSD). Over time, any variations in any terms or conditions are reported to the HMSD. Mortgage Servicing Referring to FIG. 7, the HOME mortgage servicing process is initiated as soon as a report is issued to the mortgage servicing department indicating that a mortgage has been originated 500. One aspect of the HOME mortgage servicing process is virtually identical to the standard mortgage servicing process for a conventional mortgage. This is the collection activity indicated in blocks 502 through 510 with some slight variation due to certain unique attributes of the HOME Mortgage. In step 502, an interest and amortization schedule for the mortgage is input into the mortgage servicing department's data file. This schedule is used to monitor all collection activities 504 which may be done either by automatic or by a manual means 506, 508. Most mortgage collection activities are currently executed manually, typi | ||||||