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Researchers Submit Patent Application, "System and Method for Optimizing Fixed Rate Whole Loan Trading", for Approval

July 24, 2014



By a News Reporter-Staff News Editor at Computer Weekly News -- From Washington, D.C., VerticalNews journalists report that a patent application by the inventors Nagesh, Harsha (Highland Park, NJ); Godse, Rajan (Plainsboro, NJ), filed on February 20, 2014, was made available online on July 10, 2014.

No assignee for this patent application has been made.

News editors obtained the following quote from the background information supplied by the inventors: "Financial institutions, such as investment banks, buy loans and loan portfolios from banks or loan originators primarily to securitize the loans into bonds and then sell the bonds to investors. These bonds are considered asset-backed securities as they are collateralized by the assets of the loans. Many types of loans can be securitized into bonds, including residential mortgages, commercial mortgages, automobile loans, and credit card receivables.

"A variety of bond structures can be created from a population of loans, each structure having characteristics and constraints that need to be accounted for in order to maximize the profit that a financial institution can realize by securitizing the loans into bonds. The optimal grouping or pooling of loans into bonds for a given bond structure and a given loan population can depend on the characteristics of each loan in the population. Furthermore, the bond pool or execution coupon that an individual loan executes into can depend on the bond pool or best execution of each other loan in the population. As the typical loan population considered for securitizing into bonds is very large (e.g. 10,000 loans or more), determining an optimal pooling of loans for securitizing into bonds can be challenging.

"Accordingly, what is needed are systems and methods for optimizing the packaging of a population of loans into bonds for a given bond structure."

As a supplement to the background information on this patent application, VerticalNews correspondents also obtained the inventors' summary information for this patent application: "The invention provides computerized systems and computer implemented methods for optimizing fixed rate whole loan trading for a population of whole loans.

"An aspect of the present invention provides a system for optimizing fixed rate whole loan trading. This system includes a computing system that includes a software application including one or more modules operable to develop a model for determining a securitization strategy for a population of whole loans, the securitization strategy including bonds; and operable to process the model until an optimal securitization strategy for the population of whole loans is found; and a user interface for receiving user input for the one or more modules and for outputting the optimal securitization strategy, the user interface being in communication with the software application.

"Another aspect of the present invention provides a computer-implemented method for determining an optimal execution bond coupon for each loan in a group of loans in a senior/subordinate bond structure. The method includes creating a model comprising an objective function representing a total market value of the senior/subordinate bond structure for the loans. Further, the method includes maximizing the objective function to maximize the total market value of the senior/subordinate bond structure.

"Another aspect of the invention provides a computer-implemented method for optimally pooling loans into pass through bond pools. The method includes selecting a population of loans. Further, for each loan of the selection population of loans, the method includes determining an optimal execution of each loan by a buy up or a buy down of guarantee fee. Further, the method includes determining one or more pools for which each loan is eligible. In addition, the method includes building a model based on at least one constraint for at least one determined pool; and allocating loans to the one or more pass through bond pools.

"Another aspect of the invention provides a system including a memory that has a set of instructions for allocating a portion of a group of loans to a loan package. Further, the system includes a computer coupled to the memory. Upon execution of the set of instructions the computer determines which of the loans meet one or more constraints of the loan package. In addition, the computer determines a market price of each of the loans based on a securitization model. Further, the computer can model an objective function to determine which loans in the group of loans that meets the one or more constraints are least profitable for securitization in the securitization model; and allocate the loans that meets the one or more constraints and are least profitable for securitization into the loan package.

"Another aspect of the present invention provides a method for optimizing fixed rate whole loan trading. This method includes the steps of selecting a population of loans; selecting one or more loans that meet a constraint of a bid; determining a price of each loan that meets the constraint based on a securitized model; determining whether to use an efficient model to select which of the one or more loans are least favorable to be securitized. Further, if the efficient model is used, the method includes selecting which of the pone or more loans are least favorable to be securitized by minimum dollar value of spread.

"Another aspect of the present invention provides a system for optimally pooling excess coupon resulting from securitizing loans. The system includes and network and a computer communicable coupled to the network. Further, the computer creates a model corresponding to excess coupon bond pools and an unallocated pool, each excess coupon bond pool including at least one constraint; and processes the model to allocate each of the loans into either an excess coupon bond pool or into the unallocated pool in order to maximize the total market value of the excess coupon that gets allocated to the excess coupon bond pools.

"These and other aspects, features and embodiments of the invention will become apparent to a person of ordinary skill in the art upon consideration of the following detailed description of illustrated embodiments exemplifying the best mode for carrying out the invention as presently perceived.

BRIEF DESCRIPTION OF THE DRAWINGS

"For a more complete understanding of the exemplary embodiments of the present invention and the advantages thereof, reference is now made to the following description, in conjunction with the accompanying figures briefly described as follows.

"FIG. 1 is a block diagram depicting a system for optimizing fixed rate whole loan trading in accordance with one exemplary embodiment of the present invention.

"FIG. 2 is a flow chart depicting a method for optimizing fixed rate whole loan trading in accordance with one exemplary embodiment of the present invention.

"FIG. 3 is a flow chart depicting a method for determining a securitization strategy for a population of loans in accordance with one exemplary embodiment of the present invention.

"FIG. 4 is a flow chart depicting a method for packaging a population of loans into a senior/subordinate structure in accordance with one exemplary embodiment of the present invention.

"FIG. 5 is a flow chart depicting a method for packaging a population of loans into a senior/subordinate structure in accordance with one exemplary embodiment of the present invention.

"FIG. 6 is a flow chart depicting a method for packaging a population of loans into pass through bonds in accordance with one exemplary embodiment of the present invention.

"FIG. 7 is a flow chart depicting a method for packaging whole loans in accordance with one exemplary embodiment of the present invention.

"FIG. 8 is a flow chart depicting a method for pooling excess coupon in accordance with one exemplary embodiment of the present invention."

For additional information on this patent application, see: Nagesh, Harsha; Godse, Rajan. System and Method for Optimizing Fixed Rate Whole Loan Trading. Filed February 20, 2014 and posted July 10, 2014. Patent URL: http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=1230&p=25&f=G&l=50&d=PG01&S1=20140703.PD.&OS=PD/20140703&RS=PD/20140703

Keywords for this news article include: Patents, Software.

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Source: Computer Weekly News


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