Abstract:
A method and system are provided to resolve financial problems and/or discretionary financial decisions by mortgagors and other borrowers. If a mortgage is current, then any extra money received from the mortgagor is automatically credited to a reserve account, which pays down the mortgage principal. If a mortgage payment is due but has not been paid or is only partially paid, then whatever money is needed for the mortgage payment is automatically deducted from the reserve account and applied toward the mortgage payment, thereby increasing the loan principal. As a limit, if the reserve account is depleted, the lender may commence conventional foreclosure procedures. The method and system can similarly be applied to other types of loans.

Description:
CROSS-REFERENCE TO RELATED PATENT APPLICATIONS 
       [0001]    This application is a continuation-in-part of U.S. patent application Ser. No. 12/154,505 filed on May 23, 2008, entitled RESERVE ACCOUNT MORTGAGE METHOD AND SYSTEM, and relates to U.S. Provisional Patent Application No. 60/931,776 filed on May 25, 2007, entitled RESERVE ACCOUNT MORTGAGE, which is hereby incorporated herein in its entirety by this reference. 
     
    
     BACKGROUND OF THE INVENTION 
       [0002]    1. Field of the Invention 
         [0003]    The present invention relates generally to financial loans and, more particularly, to a method and system for the purpose of assisting one or more mortgagors or other borrowers in flexibly managing their financial affairs. One preferred embodiment of the present invention provides a method and system for storing mortgage or other loan account data, collecting mortgage or other loan payments including additional amounts credited to the mortgage or loan account, and enabling mortgagors or borrowers to access the additional credited amounts to cover future mortgage or other loan payments or for any other purpose at the election of the mortgagor or borrower. 
         [0004]    2. References 
         [0005]    U.S. Pat. Nos.
       7,089,503   6,315,196   6,298,335   6,269,347   6,138,102   6,012,047   5,987,436   5,946,668   5,884,285   5,832,461   5,742,775   5,689,649   4,876,648       
 
         [0019]    U.S. Published Patent Applications No.
       2007/0106603   2007/0011084   2007/0011085   2006/0229975   2006/0212393   2006/0184450   2006/0020532   2005/0027647   2004/0254878   2003/0028478   2001/0013017       
 
         [0031]    3. Description of the Prior Art 
         [0032]    Today, mortgages and other loans are not as consumer-friendly as they could be. For example, late payments adversely impact a credit rating of a homeowner who has a mortgage. Generally, prepayment of a portion of the mortgage loan (if permitted) reduces the mortgage principal and subsequent monthly payments, but cannot be used for other purposes. 
         [0033]    Thus, if the mortgagor is laid off or has other financial difficulties, his or her home is soon subject to foreclosure and sale—regardless of how much equity he/she has in the home. In such a case, a potential alternative is to refinance. However, being unemployed and having recent late payments on his or her record exposes the mortgagor to very adverse interest rates and terms or to being rejected for a refinance. 
         [0034]    Thus, for all these reasons, it would be desirable to provide a method and system which overcome the above problems that may be encountered by mortgagors and that may be encountered by borrowers on other loans, as well. It is to this end that the present invention is directed. The various embodiments of the present invention have many advantages by providing a flexible method and system to manage financial demands for mortgagors or other borrowers. 
       SUMMARY OF THE INVENTION 
       [0035]    One embodiment of the method and system in accordance with the present invention provides many advantages in resolving financial problems and/or discretionary financial decisions by mortgagors and other borrowers, which make the method and system in accordance with the present invention useful to mortgagors and other borrowers, as well as financial institutions assisting mortgagors and other borrowers. One embodiment of the present invention provides a “Reserve Account Mortgage (RAM)” method and system that solve the above problems while incurring little cost or risk to lenders. With a RAM, a mortgagor may prepay a portion of his or her mortgage, thereby creating a “reserve account.” The same principles also apply to other loans. 
         [0036]    Considered in more detail, in the exemplary embodiment of a mortgage, if the mortgage is current, then any extra money received from the mortgagor is automatically credited to the reserve account, which pays down the mortgage principal. If a mortgage payment is due but has not been paid or is only partially paid, then whatever money is needed for the mortgage payment is automatically deducted from the reserve account and applied toward the payment, thereby increasing the loan principal. As a limit, if the reserve account is depleted, the lender may commence conventional foreclosure procedures. The principles of the present invention can similarly be applied to other types of loans. 
         [0037]    The foregoing and other objects, features, and advantages of the present invention will become more readily apparent from the following detailed description of various embodiments, which proceeds with reference to the accompanying drawing. 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWING 
         [0038]    The various embodiments of the present invention will be described in conjunction with the accompanying figures of the drawing to facilitate an understanding of the present invention. In the figures, like reference numerals refer to like elements. In the drawing: 
           [0039]      FIG. 1  is an overview flowchart of one embodiment of the reserve account mortgage or loan method in accordance with the present invention; and 
           [0040]      FIG. 2  is a block diagram of one embodiment of the reserve account mortgage or loan system in accordance with the present invention. 
       
    
    
     DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS 
       [0041]    The reserve account mortgage or loan method in accordance with one preferred embodiment of the present invention comprises a plurality of process steps.  FIG. 1  is a diagram of the flowchart of a preferred embodiment of a reserve account mortgage process. In the description that follows, the terms “mortgage” and “loan,” “mortgagor” and “borrower,” and “mortgagee” and “lender” are to be understood to be interchangeable. 
         [0042]      FIG. 1  shows the process steps for a preferred embodiment of the reserve account mortgage (hereafter referred to as the “RAM”). By way of example, but not limitation, the RAM process as show in the illustrated embodiment is a residential mortgage. Other embodiments may be for car and other consumer loans, as well as commercial and business loans. 
         [0043]    The purpose of the RAM is to allow a mortgagor or borrower  10  to prepay a portion of his or her mortgage with the mortgagee or lender  20  and be able to access those prepaid funds when needed. Thus, the prepayments are credited to a reserve account  50  of the borrower  10 . Also, amounts added to the reserve account  50  reduce the principal balance  60  of the mortgage or loan of the borrower and decrease the monthly mortgage payment  70 , as will be further described below. 
         [0044]    As shown in  FIG. 1 , the borrower  10  may initiate a transaction  30  with the lender  20 . For example, the borrower  10  may submit a payment  90 . To the limit that credits are available in the reserve account  50 , the lender  20  automatically deducts funds from the reserve account  50  in the event the monthly mortgage or loan payment is late or not paid in full, as will be further described below. Alternatively, at his or her option, the borrower  10  may preferably withdraw funds  40  from the reserve account  50  and use the funds for any other purpose. Decreasing credits in the reserve account  50  increases the principal balance  60  of the mortgage or loan and raises the monthly mortgage or loan payment  70 , as will be further described below. 
         [0045]    The amount that the monthly mortgage payment is reduced by prepayments to, or, conversely, increased by withdrawing money from, the reserve account  50 , also depends on the terms of the mortgage or loan agreement  80 . For example, the mortgage or loan terms may have fixed or variable interest rates, which are taken into account. The lender  20  may also charge transaction fees for prepayments or deductions or withdrawals from the reserve account  50 . 
         [0046]    If the borrower  10  does not make a payment  90  to the lender  20  and a monthly mortgage or loan payment is due  100 , the lender  20  determines if the reserve account  50  has sufficient credits to pay the monthly payment  110 . If credit funds are available, the reserve account  50  is reduced by the amount of the payment, and the mortgage or loan obligation is kept current  130 . If sufficient funds are not available  110 , the loan goes into default  120 . 
         [0047]    If the borrower  10  makes a payment  90  to the lender  20  and a monthly mortgage or loan payment is not due  100 , the lender  20  credits the amount paid to the reserve account  50 . Accordingly, the mortgagor or borrower may preferably increase the credits in the reserve account  50  at any time. 
         [0048]    Considered in more detail, if the borrower  10  makes a payment  90  to the lender  20  and a monthly mortgage or loan payment is due  100 , the lender  20  compares the amount paid  140  to the monthly mortgage or loan payment that is due. If the payment is less than the amount due  150 , then the lender  20  determines if the reserve account  50  has sufficient credits to pay the shortfall in the monthly payment  110 . If the credit funds are available, the reserve account  50  is reduced by the amount of the shortfall, and the mortgage or loan obligation is kept current  130 . If sufficient funds are not available  110 , the loan goes into default  120 . If the payment equals the amount due  160 , then the monthly mortgage or loan payment is accepted, and the mortgage or loan obligation is kept current  130 . Finally, if the payment is more than the amount due  170 , then the amount of the monthly mortgage or loan payment is paid  160 , and the excess funds are credited  180  to the reserve account  50 . 
         [0049]    Thus, the RAM provides numerous advantages. These advantages may include:
       1. No Late Payments or Fees If a borrower&#39;s payment is late, the lender automatically deducts it from the borrower&#39;s reserve account. This transaction does not result in a late-payment notation on the borrower&#39;s credit report or any additional fees. The draw-down keeps the mortgage current so, when the late payment arrives, it restores the balance in the reserve account.   2. Longer-Term Financial Protection Assume a worker estimates it would take six months to find another job if he or she were laid off. Building up a reserve account of six months&#39; payments (or more) would protect the borrower from losing his or her home should this or a similar event happen. This “safety net” could prevent the loss of one&#39;s life savings invested in a home or the loss of the bulk of many people&#39;s net worth (i.e., the equity in their home) and having to start over.   3. Emergency Source of Cash The reserve account serves as a source of emergency cash. For instance, an unexpected car repair could be paid in lieu of making a mortgage payment that month and, instead, having the mortgage payment deducted from the reserve account.   4. Mortgage Pay Down The advantages of accelerating the repayment of principal are well-documented and understood by persons skilled in the art. Just making one additional payment per year, turns a 30-year mortgage into one that&#39;s discharged in 17 years. Thus, paying into a reserve account lowers future monthly payments and amortizes the loan at a faster rate. Extra payments may be scheduled as a payroll deduction or periodic lump-sum contributions.   5. Source of Larger Amounts A home refinance to pay for unexpected tax bills, college expenses, home repairs, and the like adds an extra burden due to the high cost and effort of securing such a loan. Again, the reserve account could fund many of these needs without incurring additional expense.   6. Higher Earnings Rate Most liquid assets (e.g., bank accounts, money market funds, and the like) earn an interest rate lower than what people pay on their mortgages. Therefore, money in the reserve account “earns” them a higher return since it saves having to pay the mortgage rate of interest on those funds.   7. Universal Applicability The RAM may be viewed as a “plug-in” feature that can be used with any type of mortgage (e.g., fixed rate, variable rate, negative amortization, and others). Indeed, reserve accounts may also be applied to car loans, credit card accounts, and leases, as well as most any type of consumer and business debt obligation.   8. Access to Savings Flows A lender may object that borrowers could see this as a substitute for a savings account. More likely, however, it will create an attractive alternative for savings flows that are going into other financial products (e.g., mutual funds, money market funds, 401k&#39;s, etc.). Furthermore, funds paid into the reserve account can be re-lent to other borrowers.   9. Minimal Added Costs or Risk for Lenders There will be additional recordkeeping by lenders, but this may be easily computerized with only a minor increase in costs. It&#39;s contemplated that lenders could regard the drawdown of a reserve account as another loan transaction with its own borrower risks, appraisal requirement, costs, etc. However, the reserve account assures that the loan balance is kept at or below the amortized payback amount at all times. If not, the loan goes into default, and normal foreclosure procedures are triggered.   10. Lower Foreclosure Rates The RAM will likely reduce the number of foreclosures and, thereby, significantly cut the collection and asset recovery costs of financial institutions. The average cost to a lender of foreclosing and selling a home is approximately $50,000 per residence. During cyclical economic downturns, the potential depletion of lender capital from real estate defaults poses a serious risk that can be mitigated by the RAM.   11. Early Credit Warning The pattern of borrower transactions in his or her reserve account will provide insight into the creditworthiness of a customer. Additions to or withdrawals from the reserve account together with the amounts and frequencies of these withdrawals will signal a customer&#39;s overall financial condition.   12. Counter-Cyclic Economic Tool RAM-type loans may lessen economic downturns and help slow the economy during rapid growth. For example, in good times borrowers will save more (add to their reserve accounts) thus slowing the business cycle. In a recession, distressed borrows will draw down their reserve accounts and avoid further depressing the economy with home foreclosures and loan defaults.   13. Increased Savings Rate Americans are faulted for not saving enough as a nation. However, the incentives provided by a RAM should boost the aggregate savings rate, which increases long-term economic growth.   14. Cornerstone for CMA-Type Services The RAM could be the basic capability around which other cash management services would be supplied to borrowers. Much like cash management accounts allowed to stock brokerage clients to gain overall control of their finances, the RAM could permit banks and other lenders to expand their financial services.   15. Limited Bank-Run Risk Lenders could limit reserve account withdrawals to the amount of the mortgage payment per month. Having aggregate figures for all borrowers&#39; additions and withdrawals will give lenders a useful forecasting tool for their future cash flow needs and surpluses. Bank reserves would be adjusted accordingly.   16. Minimal Accounting and Documentation Requirements Implementing the RAM could be accomplished by simply adding a clause to present loan documents. Existing software programs should be sufficient to handle the transaction accounting for this type of product.   17. Immediate, Widespread Implementation The prospect for significant benefits to consumers, probable net gains for lenders, fewer foreclosures, higher savings, and better economic stability would likely receive substantial support from state and Federal legislators. Regulators and lenders could adopt the RAM and quickly extend its provisions and benefits to all borrowers by adding a clause to existing loan documents. Such a move would demonstrate constructive steps being taken to resolve problems in the mortgage and housing markets. Borrowers, lenders, and the economy would rapidly begin realizing the described advantages. Tops-down pressure from government and bottoms-up demand from borrowers may accelerate any approval processes for this new type of mortgage.   18. Borrower Acceptance Estimates are there would be very high demand for a mortgage that delivers the benefits of a RAM.       
 
         [0068]    Additionally, the reserve account mortgage or loan method is particularly adaptable to computer software executed by a computer for managing mortgage accounts, and it is in this context that the preferred embodiment of the system in accordance with the present invention will be described. It will be appreciated, however, that the reserve account mortgage system in accordance with the present invention has greater utility, since the system may be used for other types of loans not specifically described herein. Accordingly, the embodiments of the reserve account mortgage system in accordance with the present invention is an example only, and is not intended to limit the scope of the present invention to managing mortgage accounts, as the principles of the present invention apply generally to managing any type of loan. 
         [0069]    Referring now to  FIG. 2 , various components of a preferred embodiment of a reserve account mortgage or loan system in accordance with the present invention is shown. Generally, the purpose of the reserve account mortgage or loan system is to enable at least one borrower  10  to manage his or her finances by having a reserve account maintained in a database  200  pursuant to loan terms  250 . Such borrowers  10  may include an individual(s) and/or a small business(es) who are mortgagors or who have other loan obligations. The reserve account mortgage or loan system provides a platform which enables efficient interaction between a borrower  10  and a lender  20 , as follows. 
         [0070]    As shown in  FIG. 2 , a borrower may access and interact with the reserve account mortgage or loan system by a communication medium such as the Internet (including the World Wide Web) or intranet and personal computer  210 , or any other electronic techniques and devices that have communication capability with Internet, intranet, or television, for example, such as personal computers, personal data assistants (PDA&#39;s), cellular telephones, and other personal communication equipment and computer communications software  220  that interfaces the borrower  10  and a host computer  230 . 
         [0071]    The reserve account mortgage or loan system preferably comprises a software application operating on the host computer  230 , as shown in  FIG. 2 . For example, the host computer  230  may be any personal computer having at least 256 megabytes of random access memory and preferably includes one gigabyte of random access memory. The reserve account mortgage or loan system in accordance with one exemplary implementation of the present invention is a 32-bit software application compatible with a Microsoft Windows 2000 or Windows NT or later operating system available from Microsoft Corporation located in Redmond, Wash. The host computer  230  also preferably comprises a hard disk drive having at least 40 gigabytes of free storage space available. The host computer  230  is provided with the Internet or World Wide Web or intranet connection  240  for connection to one or more borrowers  10 . The connection  240  comprises a high-speed connection, for example, a DSL or greater connection, and is preferably a T1 or faster connection. In the preferred embodiment of the reserve account mortgage or loan system, borrowers  10  can be ported to the Internet or World Wide Web or intranet and responses to inquiries and payments and other transactions may be performed by the host computer  230 . In another embodiment of the reserve account mortgage or loan system, responses to inquiries and payments and other transactions may be preformed by personal computers  210  associated with borrowers, such as withdrawing credit funds from the mortgage reserve account for other purposes. 
         [0072]    As mentioned earlier, the reserve account mortgage or loan system also comprises computer software or code. In the preferred embodiment, the reserve account mortgage or loan system computer software or code can be a hosted application that runs on the host computer  230 . In an alternative embodiment, the software or code can comprise a client installed on or downloaded to the personal computers  210  of borrowers and executed locally. Thus, the computer software or code may be initially supplied to borrowers on a CD-ROM or other electronic medium or downloadable over the Internet or World Wide Web or intranet  240 . 
         [0073]    In accordance with one embodiment of the reserve account mortgage or loan system of the present invention, the software or code may additionally comprise other software applications such as word processing and spreadsheet application software. One example of a word processor that can be utilized in the various embodiments of the reserve account mortgage or loan system in accordance with the present invention is Word, and one example of a spreadsheet is Excel, both commercially available from Microsoft Corporation. 
         [0074]    While the foregoing description has been with reference to particular embodiments of the present invention, it will be appreciated by those skilled in the art that changes in these embodiments may be made without departing from the principles and spirit of the invention. Accordingly, the scope of the present invention can only be ascertained with reference to the appended claims.