Patent ID: 7340427

Claim:
A method for structuring a series of securities, including a floating-rate security and an inverse floating-rate security, that is backed at least in part by a mortgage pool having a total net cash flow, to avoid an artificial leverage limitation, comprising: determining a maximum interest rate for the floating-rate security; receiving a first portion of interest cash flow supplied by the mortgage pool for payment by the floating-rate security according to a value of an interest rate index, wherein the first portion of interest cash flow is insufficient to pay the maximum interest rate for the floating-rate security; receiving a second portion of interest cash flow supplied by the mortgage pool for payment by the inverse floating-rate security according to the value of the interest rate index; receiving, if the value of the interest rate index is below a threshold, a third portion of interest cash flow supplied by the mortgage pool for payment for an interest-rate derivative; receiving, if the value of the interest rate index is not below the threshold, a variable cash flow from the interest-rate derivative for payment by the floating-rate security; paying, to a holder of the floating-rate security, the first portion of interest cash flow supplied by the mortgage pool minus the third portion of interest cash flow, if the value of the interest rate index is below the threshold; paying, to the holder of the floating-rate security, the first portion of interest cash flow supplied by the mortgage pool plus the variable cash flow from the interest-rate derivative, if the value of the interest rate index is not below the threshold; and paying, to a holder of the inverse floating-rate security, the second portion of interest cash flow supplied by the mortgage pool, wherein a sum of the first portion of interest cash flow supplied by the mortgage pool, the second portion of interest cash flow supplied by the mortgage pool, and the third portion of interest cash flow supplied by the mortgage pool is equal to the total net cash flow of the mortgage pool.