Financial system and method

#This application claims priority to Australian Provisional Patent Application No. 2009906029 in the name of Holzhausen Pty Ltd, which was filed on 10 Dec. 2009, entitled “Financial System and Method” and the specification thereof is incorporated herein by reference in its entirety and for all purposes.

#The present invention relates to a data processing method and system which may be used in relation to various financial matters including, but not limited to, income, capital gain, investment and saving.

#While the description of the invention herein is primarily concerned with home annuation and the novel systems and processes required to source, price, integrate and manage such arrangements, it will be appreciated that the invention is not limited to these applications and can be applied to numerous other financial arrangements and any type of asset that can appreciate in value. Furthermore, for convenience the description of the invention herein is primarily concerned with consumers, superannuation and retirement funds/investors however it will be appreciated that the invention is not so limited and can be used by a wide variety of customers.

#Various embodiments of the invention will be described with reference to the following non-limiting illustrations representing preferred embodiments of the present invention;

#FIG. 1 is a schematic flow chart of prior art systems for mortgage origination and securitisation, showing “leakage” to the financial industry,

#FIG. 1a is a schematic flow chart of a prior art consumer money cycle demonstrating leakage by way of profits to the financial industry,

#FIG. 1 depicts prior art mortgage origination and securitisation processes which are commonplace in addition to more traditional ‘on balance sheet’ lending practices. Revenue derived from the loan is from either interest payments throughout the term; or payment, and in the case of asset depreciation deduction, of ‘interests worth’ upon redemption of the mortgage loan. This revenue, or return in the case of the investor 5, is calculated in relation to the loan principal using either a compounding interest rate or using a ratio of asset appreciation/depreciation to loan principal, or both. Mortgage brokers 10 find borrowers 9 and submit loan applications on behalf of the borrower 9 to the lender/originator 7 who will approve or reject the borrowers 9 application, based upon criteria set by the issuer 6 in order to construct a pool of mortgages that can be securitised, typically via a unit trust mechanism and sold to investors 5 who then ultimately hold the credit risk. The servicer 8 is contracted to manage mortgage loans and collect payments from borrowers 9 and remit these payments to the issuer 6 who distributes to investors 5. Remuneration for the servicer 8 is generally based upon volume fees. Lenders/originators 7 generate their revenue from selling the mortgage loans as well as fees. Issuer 6 generates revenue from selling securities to investors 5 and clipping mortgage returns whether interest or appreciation based. Ultimately the majority of risk is passed onto the investor after credit enhancement, whether risk be; borrower default upon an interest based mortgage loan; or low, zero or negative growth of underlying assets over which shared appreciation and depreciation mortgages loans are secured.

#An important aspect to appreciate regarding the existing mortgage loan origination systems, whether subsequently securitised or not, is that loan applications are approved or rejected based upon the lender's criteria. Of course in the case of existing contemporary lending methods this often reflects the nature of the securitisation pools for which there is investor demand. Borrowers can be rejected on what can seem to them as an arbitrary basis, in contrast to the home buying or selling process which a mortgage loan is often financing, where for example they (a consumer/home seller) can set out the value at which they will sell their home and offer it to millions of potential purchasers for acceptance. The invention described herein enables borrowers to take an active role in setting the terms under which they wish to borrow and offer such terms to an unrestricted market of potentially millions of lenders (savers/investors) as well as professional investor entities if they so desire.

#To demonstrate the effect upon consumers of prior art lending systems, FIG. 1a is a simplified depiction of the loss to consumers from their interaction with prior art lending systems and which the present invention seeks to alleviate by allowing consumers to invoke the present invention in isolation or in combination with prior art lending systems and methods. FIG. 1a depicts saver (“S”) 720 who participates in employment source (“ES”) 721 in order to derive income (“I”) 722 and which results in taxation (“T”) 730 payments to government (“G”) 731, with part of said T 730 allocated by said G 731 to pension fund (“PF”) 740. It will be appreciated that PF 740 could also be depicted as a superannuation fund where said fund would receive a minimum of the super guarantee from ES 721. Once S 720 has sufficient deposit to purchase a home (“H”) 752, he engages with lender (“L”) 750 who provides mortgage loan (“ML”) 753 secured upon H 752 and in return S 720 must make interest and principal repayments (“RP”) 754. L 750 replenishes (or obtains as the case may be) his lending capital (“CAP”) 741a from securitisation special purpose vehicle (“SSPV”) 751 by issuing a security and paying coupon (“C”) 756 which will have a lower value than RP 754; the difference between the two is represented by profit leakage (“PL”) 755. There are of course many other profit leakages in this system in the form of fees and charges as entities managing the system in reality number far greater than the two shown as SSPV 751 and L 750. The SSPV 751 obtains capital (“CAP”) 741 from PF 740 in exchange for issuing a security with a coupon (“C”) 742 which will be less than C 756, such difference represented by profit leakage (“PL”) 757 which goes towards the remuneration of such entities (not shown) as underwriter, trustee, rating agency, credit enhancement provider, mortgage servicer. The essence of FIG. 1a is a representation of a consumer having to pay the financial industry to employ money which, with particular reference to superannuation contributions, has already been allocated for the consumer to invest and manage in order to maximise the value of these monies available upon retirement and which value would arguably grow to a larger sum for retirement where the financial industry is not directly deriving income and profit from those monies. In respect of the PF 740 shown, FIG. 1a demonstrates that a leakage to the financial industry is present and that the consumer is always paying for this leakage through higher taxes, lower pensions and directly out of their disposable income over the course of their working lives via payments of interest or “interests' worth” to the financial industry. The present invention, in various embodiments will alleviate the cost to consumers. In one embodiment of the present invention, mortgage funds are established to provide housing (or otherwise) finance to consumers that combine prior art interest bearing debt finance with home annuation so that the immediate cost of finance to consumers is more affordable, through both direct means and indirectly; as such arrangements effectively lower consumer default risk and hence lower the risk premium a lender (the fund) needs to charge upon the interest bearing debt component.