AU2008100991B4 - A Data Processing System and Method with Appreciation Contingency and Conflict Management - Google Patents

Description

s JUN /AX-AU-UJy A DATA PROCESSING SYSTEM AND METHOD WITH APPRECIATION CONTINGENCY AND CONFLICT MANAGEMENT Field of the Invention 5 The present invention relates to a data processing system and method which utilize computer generated digitally encoded electric waveforms in the implementation of novel financial systems and methods. In the description contained herein, the invention is primarily concerned with state-or collateral-dependent financing arrangements (typically debt contracts) over real estate assets, and the new data 10 processing systems and methods required to screen, select, process, securitise and portfolio manage such financial arrangements. However, the application of the invention is not, as such, restricted to either debt instruments or real estate assets. The invention can be applied to many different types of financial arrangements over a significant number of asset categories (e.g. commodities or human capital). 15 Copyright Notice This document contains material which is subject to copyright. The applicant as copyright owner has no objection to the reproduction of this patent document in its entirety as it appears in the Patent Office files or records, but otherwise reserves all 20 copyright rights whatsoever. Background Art The global mortgage industry has evolved over the last 50 years at great pace. This has been particularly the case with the advent of the process of "securitisation", 25 whereby bundles of mortgages are packaged together and sold on to third-parties, thereby liberating the balance sheets of banks to engage in a new round of cost effective lending. This has in turn led to the development of liquid secondary markets in mortgage-backed securities that are actively traded by investors all around the world. 30 Innovation in the primary mortgage market has, however, been relatively stilted. Since the turn of the 20th century, global housing finance has been dominated by either fixed-rate or variable-rate mortgage instruments. While there has been some 1 5097A-AU-D9 innovation on the periphery of these products (e.g., interest-only contracts, home equity loans, etc), this has not resulted in fundamental changes to the way in which consumers finance their home ownership choices. 5 Perhaps the one exception here is the "reverse mortgage", in which the mortgage's interest rate compounds or "rolls-up" over time, thereby enabling the consumer to defer the cost of the finance until the time that they either die or sell their property. Under a reverse mortgage, there are not, therefore, any ongoing interest and principal payments to which the consumer is subject. Reverse mortgage are, furthermore, 10 limited to a specific class of consumers: namely, the elderly. Indeed, the providers of these products quite explicitly prevent consumers under the age of, typically, 65 from qualifying for such loans. In addition, reverse mortgages are not used to purchase new properties: on the contrary, they are restricted for use as "equity-release" mechanisms for those asset-rich yet cash-poor owner-occupiers who are currently living in their 15 own residence. Reverse mortgages are not as a consequence relevant to the traditional housing finance industry. As a final point, reverse mortgages are-in their own way simple interest-bearing securities that appeal to fixed income investors only. Reverse mortgages do not in any manner whatsoever provider the lender (or, in the event of securitisation, a third-party investor) with any exposure to the risks and returns 20 associated with changes in the value of the underlying properties over which the mortgages are held (i.e., the owner occupied residential real estate asset-class). In 2003, a landmark government report in Australia (see C. Joye, A. Caplin, E. Glaeser, P. Butt, M. Kucynski (2003) New Approaches to Reducing the Costs of 25 Homeownership; A Report for the Prime Minister's Homeownership Taskforce, Menzies Research Centre) unlocked the door to a new universe of housing finance possibilities, with particular emphasis placed on allowing consumers to draw on the "equity" side of the home ownership balance sheet while at the same time supplying institutional investors with efficient access to the residential real estate asset-class for 30 the very first time. This was in effect a vastly more advanced suite of proposals to the many (mostly distant) arrangements that exist in both the professional and academic worlds. In these worlds there has for some time existed various cottage-industry style shared-equity programs (almost exclusively in the academic and public sectors in 2 5097A-AU-D9 Australia, the UK, the US, and New Zealand) targeting faculty and low-income households, in addition to isolated incidences of so-called "shared-appreciation" mortgages in the private sector in the UK and US. There has not, however, ever been a successful example of an enduring market-based programme in which significant 5 numbers of consumers have shared the long-term economic exposures to their owner occupied homes with similarly large numbers of external investors. The 2003 Australian Prime Minister's Home Ownership Task Force Report outlines merely the conceptual architecture through which such a market could be developed. 10 In particular, that report argues that while for centuries businesses in need of funds have been able to avail themselves of both debt and equity, households that aspire to expand have been restricted to the use of mortgage finance. And so, despite the ever growing sophistication of corporate capital markets, consumers around the world have been forced to use only the crudest of financial instruments. The report contends that 15 the implications of this deficiency vary from the merely inconvenient to the extremely tragic. Suffice to say that many of the grave economic complications that are manifest throughout the course of an occupier's life-cycle can be attributed to the "all-or nothing constraint" on home ownership (i.e., the fact that households must retain 100% of the equity in their homes, and are prevented from sharing their investment in 20 the residential real estate asset with third-parties). The report describes how this all-or-nothing constraint on home ownership (also referred to as the "indivisibility" of the housing asset) plagues consumers right throughout the life-cycle. For example, young families scramble to scrape together 25 funds for a down payment so that they can graduate from the difficulties of rental accommodation to the (supposed) nirvana of owner-occupation. This period of intense saving often induces a considerable consumption squeeze and severely constrains lifestyle choices. In fact, the bulk of young households in some countries are obliged to commit around 70% of all their wealth to one highly illiquid and very volatile asset 30 - residential real estate. Then there are the costs associated with servicing the mortgage and maintaining the home. The weight of such commitments frequently forces families to endure Spartan-like conditions in the early to middle years - the so called "house poor". In later life, most manage to pay off all their debts and live in the 3 5097A-AU-D9 home clear and free. Unfortunately, by this time retirement beckons and the majority of dwellers have precious little income (other than an old age pension). They are now "asset rich, but cash poor". Indeed, a significant proportion of all elderly populate the lowest two income quintiles. 5 In an attempt to rectify the asymmetry between corporate and household capital markets, the report proposes that contemporary arrangements could be augmented by a more flexible system that would furnish families with the option of using both "debt" and synthetic "equity" finance when purchasing their properties. Under the 10 report's proposal, housing would be financed by using a traditional mortgage in combination with synthetic equity capital, contributed by the same or a separate lender via a "state- or collateral-dependent" debt contract, whereby the normal interest rate is replaced by an entitlement or claim to the future positive and/or negative price movements associated with changes in the value of the underlying property over 15 which the debt instrument is held (hence the "state-dependence"). The report claims that these "equity finance" arrangements could give rise to, amongst other things: a 30% plus reduction in the upfront costs of home ownership; an increase in the consumer's disposable income once they move into their home (as a result of the diminished debt servicing obligations); a reduction in their risk of default given the 20 smaller size of their traditional mortgage; and a material increase in the household's liquid wealth at retirement since they no longer have to dedicate most of their savings to the otherwise illiquid and inaccessible dwelling asset. And so, whereas this household might once have been priced out of the market, the report maintains that the use of equity finance has made home ownership a much more realistic ambition. 25 The report also claims that the use of equity finance would constitute a safer equity release mechanism for the asset-rich yet cash-poor elderly (who represent an increasingly large proportion of the population) in comparison to reverse mortgages. The report posits that it is an unfortunate fact that the illiquidity of housing equity 30 obliges many aged individuals to select between two starkly different paths. They either: (1) continue to teeter on the precipice of poverty, while retaining the right to occupy the home that they have cherished for so long; or (2), alleviate these monetary woes by selling their current abode, moving to a smaller one, and possibly 4 5097A-AU-D9 jeopardising relationships that have been defined by the area in which they live. The advantage implied by the latter option is of course an improvement in the homeowner's otherwise dim consumption prospects. 5 The report notes that the equity-release opportunity has not gone unnoticed by members of the financial community. In fact, there have been several attempts to provide home owners with a vehicle through which they can liberate wealth held in the form of housing. These include products such as reverse mortgages, shared appreciation mortgages, and home-equity loans. Notwithstanding the recent growth in 10 reverse mortgages, the success of these offerings has been a slow-paced affair, to say the least. The majority of older dwellers spent their middle years constrained by the creditor's leash, and they are understandably reluctant to burden themselves with any additional debt (at least in its conventional incarnation). At the same time, many choose not to trade down to a smaller home, since this usually requires them to move 15 to an entirely different geography, which then raises the spectre of sacrificing social ties that are predicated on the locational proximity of the two parties. Strong psychological bonds to the current property can create a substantial roadblock to higher levels of consumption - so much so that most financial planners tend to ignore the owner-occupied home when assessing the resources available for use in later life. 20 In light of the above, the report argues that there is little doubt that by eliminating the "indivisibility" of the dwelling asset (i.e., by way of sharing the equity entitlements with third-parties) one could open up a new realm of possibilities for elderly occupiers. In contrast to many of the alternatives, the report submits that collateral 25 dependent equity finance offers elderly owners three particularly attractive attributes: (1) it prevents them from having to move from their current homes and incur all of the associated emotional stress; (2) they do not have to assume traditional debt; and, most importantly, (3) in comparison to a reverse mortgage, equity finance instruments leave consumers, in the worst possible contingencies, with a significant share of the equity 30 in their home. Reverse mortgages, on the other hand, would expose these same borrowers to the risk that the ever-growing loan amount will eventually balloon out to consume 100% of the value of their homes, thereby subjecting them to the spectre of little, or even negative, equity. 5 5097A-AU-D9 Another important advantage afforded by equity finance is the valuable insurance service the lender supplies by sharing a proportion of the downside risk (i.e. the risk of property price declines). The simple fact is that most homeowners own one house, 5 situated on one street, pointing one direction, with all its manifest peculiarities. Indeed, economists estimate that the "idiosyncratic" risk attributable to a single family home is more than two to three times that which one would impute to a well diversified portfolio of property (and of course, the use of large amounts of leverage only serves to magnify these hazards). 10 The report's equity finance instrument was designed such that when the housing market declines, the cost of capital is low, while when it booms, it is comparatively high (which is obviously ideal from the consumer's perspective). That is to say, if there is no price appreciation, households are not obliged to make any economic 15 transfers to the lending institution or individual (or synthetic equity provider) over and above the original loan amount - certainly a superior outcome to paying interest on a massive mortgage. In the event that there is price depreciation (as was the case in the early 1990s), households benefit from being able to redistribute some of these risks to the investor. All other forms of debt finance (including reverse mortgages), by way of 20 contrast, offer no such flexibility, and as such are clearly distinguished from equity finance mortgages. While the case for investors is complex, it would appear to be just as attractive. Owner occupied residential real estate is, after all, the largest asset class on earth, 25 valued at $70 trillion in developed countries alone. Since 1960, it has outperformed stocks, bonds and real estate investment trusts on a risk-adjusted basis. It is also a highly "uncorrelated" investment category, which could provide prospective participants with significant diversification gains. The experience of the stock market crashes of 1987 and 2001 are a classic case in point: while global equities suffered 30 significant losses, owner-occupied housing in Australia, Europe and North America delivered tremendous price appreciation. And so, if institutions could spread their eggs among a greater number of baskets, they would be able to appreciably increase (decrease) portfolio returns (risk) while holding risk (returns) constant. Of course, it is 6 5097A-AU-D9 currently impossible to access real estate's risk-return profile in a well-diversified fashion or to trade home equity on a liquid market. While the report provides an impressive articulation of the equity finance opportunity 5 and outlines the skeletal features of how these arrangements might practically develop, it does not specify the precise contractual solutions to more fundamental issues associated with the economic pricing of the equity finance contract, including for example, prepayment by consumers who want to stay in their homes, the refinancing of the traditional interest-bearing mortgage with which it is to be bundled, 10 and owner initiated renovations to the property that serves as the contract's underlying collateral. Consequently, on the consumer side of the equity finance ledger (i.e., setting aside the capital markets challenges for the time being), the report did not provide comprehensive proposals as to how one could confidently solve crucial problems associated with "adverse selection" (e.g., borrowers who prepay their equity 15 finance instruments to the detriment of the lender) and "moral hazard" (e.g., borrowers who do not seek to maximise the value of their properties, or engage in behaviour that detracts from its future sale proceeds). The report is also silent on the critical technological systems that would enable the lenders of both the traditional interest-bearing mortgage and the equity finance instrument to avoid conflicts of 20 interest and thereby interact advantageously. On the capital markets front, the report once again sketches out the broad nature of the equity finance opportunity, while shedding no light on the methods, systems, and technologies that the distributors, lenders, underwriters and/or funders of these equity 25 finance contracts must use in order to identify, screen, select, securitise, and service such assets, and manage the overall portfolios into which they are placed on an ongoing basis through time, in order to enable a successful and self-perpetuating interaction between the consumer and investor sides of the equity finance market. 30 The many otherwise intractable commercial problems highlighted above have motivated the present developments. 7 5097A-AU-D9 There have been a number of private and public sector programmes that have tried to implement arrangements somewhat similar to the equity finance initiative of the abovementioned report. 5 In 1987, the US Congress created the Home Equity Conversion Mortgage ("HECM") Insurance Demonstration Program under the National Housing Act to: (1) facilitate the conversion of home equity into liquid assets to meet the needs of elderly home owners; (2) encourage and increase participation of the mortgage markets in this process; and (3), determine the extent of demand for home equity conversion and the 10 types of mortgages that would best serve the needs of aged individuals. Under the HECM Program, elderly home owners could assume a reverse mortgage secured by the equity in their residence. As the borrower receives payments, the amount of debt tied to the mortgage rises over time. This debt is non-recourse, with the implication that only the value of the dwelling may serve as collateral, and other personal assets 15 cannot be seized if this value is not sufficient to pay off the loan. Originally authorised by Congress to insure 2,500 reverse mortgages through to September 1991, the Department of Housing and Urban Development ("HUD") designed the demonstration program in consultation with other federal agencies and 20 implemented it with a Final Rule in July 1989. The next year, Congress extended the demonstration through to 1995 and expanded HUD's authority to insure 25,000 mortgages. It subsequently amended the program again to authorise HUD to insure up to 50,000 mortgages through to September 30, 2000. And in October 1998, Congress increased the number of allowable outstanding loans to 150,000. 25 Yet for reasons outlined previously, such interest-bearing reverse mortgages-which afford the lender no access to the risks and returns associated with the underlying property-are very different to equity finance instruments. 30 In the US also, state and time-dependent shared "appreciation" mortgages ("SAMs") were developed in response to the inflationary pressures experienced during the 1970s, and on the surface at least bear the closest resemblance to some of the "upside" and "downside" collateral-dependent equity finance mortgage techniques discussed 8 5097A-AU-D9 herein (which, in plain-vanilla form, might be seen as analogous to a shared "appreciation and depreciation" mortgage without any time-dependent interest rate attached). When the general price level rises, there is a front-end loading of interest payments in standard mortgage instruments. That is, inflation causes nominal rates of 5 interest to rise while simultaneously driving down the real value of outstanding debt. A SAM reduces the extent of this front-end loading by enabling users to pay lower rates of time-dependent interest today in exchange for investors receiving a collateral dependent share of the inflation-induced increase in the value of housing in the future. 10 The SAMs offered in the US were relatively short term (generally 10 years in duration), and combined sizeable cuts in interest payments with a substantial sharing of appreciation. One product in particular presented households with a 6% per annum interest rate concession in return for a contingent claim on 40% of the appraised price growth. Very few such instruments were in fact issued, in part because of their 15 nebulous tax treatment. The primary mandate of the IRS of the USA is to prevent tax avoidance. Regrettably, this seems to have coloured its attitude when called to rule upon the prickly subject of whether a SAM entitles householders to mortgage interest deductions. In the end, in 1983 the IRS decided (somewhat reluctantly, if one reads between the lines) that both the fixed and contingent interest payments on a specific 20 SAM product were indeed tax deductible). The ruling was deliberately narrow, and as a further sign of inertia, the IRS has twice since announced that it would not issue any additional determinations on the subject, most recently in 1996. The consequences of the IRS's attitude towards the classic SAM continue to ripple 25 throughout the US housing market to this day. There was of late, for instance, a well funded and researched attempt to launch just such an instrument, with the National Commerce Bank Services ("NCBS") of Memphis offering to acquire contracts from local issuers in the Southeastern states, and Bear Stearns undertaking to sell the securitised bonds. Yet the product was withdrawn almost immediately, in a large part 30 because of ongoing questions about the stance of the IRS. To illustrate the manifest ambiguity, consider the advice NCBS offered to potential clients. 9 5097A-AU-D9 "The application of the federal income tax rules to a SAM is both uncertain and complicated, and the rules will affect each borrower differently. Accordingly, you must talk to your tax advisor about the consequences of borrowing under a SAM." 5 The Reverse Mortgage Advisor Volume 3.2 (Spring 2000) edition contained the following statement about another shared-appreciation type product, developed by Financial Freedom, with the standard time-dependent interest element, "The new product, called the home appreciation loan ("HAL"), is still under development and may be unveiled in the third quarter of this year. The HAL would have many 10 characteristics of a reverse mortgage. For example, a borrower could take the loan proceeds as a lump sum, and the loan wouldn't have to be repaid until the borrower dies or sells the home. The repayment obligation would be the loan amount borrowed, plus accrued interest and a predetermined percentage share of the home appreciation during the loan period, which would be negotiated upfront between Financial 15 Freedom and each borrower. The greater the percentage, the larger the loan size. For example, if a borrower's home was valued at $150,000 when the HAL was made, and the home was sold five years later for $180,000, the borrower would have to pay Financial Freedom a percentage of the $30,000 gain from the sale of the home." As of the priority date of the present application, there has been no commercialization of the 20 proposed product by Financial Freedom, or its parent, Lehman Brothers. More recently, bankers, employers, local governments, and not-for-profit organisations have launched shared appreciation products in many of America's most expensive housing markets, from Howard County, Maryland to San Diego, California. 25 These contracts generally have one common element: instead of a SAM replacing the conventional first mortgage, as in the experiments of the 1980s, the scheme supplements it, usually in the form of a second mortgage or, in one case, a co ownership agreement (with respect to the latter, see also US Patent No. 5,983,206 for example of a mortgage combined with a joint venture equity partner). Typically, an 30 equity source provides 20 to 25% of the purchase price (in one programme this percentage has risen to 50%) in exchange for a similar share of the appreciation at point of sale. The remainder of the acquisition costs are financed by a small down payment and a conventional first mortgage of 70 to 75% of the home value. 10 5097A-AU-D9 These initiatives have usually been implemented as either public-purpose programmes to help low-to-moderate income families or as employer-sponsored schemes to assist employees acquire a home (the latter of which is most prevalent among universities in 5 comparatively expensive markets such as Harvard, MIT, Stanford and the University of Colorado). As such, it is not surprising that most have operated on a small scale, producing at best only a few thousand financing arrangements nationwide. They do not appear to be shaped in a way that can attract significant private capital for two basic reasons: (1) the current design does not give rise to returns that would be high 10 enough to appeal to outside investors-equity partners do not normally receive any premium for giving up the decision-making rights, nor do they receive any rental yield that would usually arise in the context of a direct equity investment in residential real estate; and (2), the existing programmes do not share a common contractual structure, with different parameters on everything from duration, to repayment 15 formulas, to the legal structure. As a consequence, these efforts have not spurred the emergence of a tradable financial instrument commodity in housing equity, which would provide the homogeneity that the secondary markets so desperately seek. In 1996, Northbay Family Homes, a not-for-profit organisation in the San Francisco 20 Bay Area, developed a product known as the Community-Assisted Shared Appreciation ("CASA") contract. Unlike its peers, CASA has attracted considerable investment from banks, development firms, and other private entities that supplement the government funding. The investors obtain an equity stake in the house in the form of a second mortgage, which is then backed up by the local authorities with a third 25 mortgage. The second and third mortgages each equal 10% of the sales price, for a total equity investment of 20%. Both the investor and the government agency get their funds back when the home owner sells the property. If the occupiers have not sold after 14 years, they are required to refinance and buy out the investors if they can afford to do so. Significantly, when the house is disposed of, the family receives 40% 30 of the appreciation, while the equity partners collect 60% (most of which goes to the private institutions). Due to the high prices in the San Francisco area, this initiative has proved to be extremely popular with residents. I1 DUY /A-AU-)UY Indeed, all of these programmes have experienced demand that has been much greater than the available supply. In Howard County, for instance, a recent financing round for nine buyers attracted 347 applicants. Part of the reason demand has exceeded supply is that most schemes have offered financing on exceptionally favourable terms as a result of 5 the flexibility afforded by public funding. But the fact that even the CASA program has galvanised strong demand shows that there exists the potential for a much larger consumer market than is presently the case. In all of the above cases, the state-dependent nature of the shared-appreciation mortgage 10 instrument is confined exclusively to one area: events in which the value of the house increases. As a consequence, the cost of capital borne by the consumer is not in any way affected by events in which the value of the property declines. Lenders under these arrangements apparently have not conceived of a situation in which they would be willing to share any of the "risks" associated with home ownership. Put differently, they have not 15 thought of offering households an "upside" and "downside" collateral-dependent mortgage (or, simply, an "equity finance mortgage") arrangement where a proportion of the principal amount would actually be forgiven in the event that the price of the property falls, in addition to foregoing or not foregoing all other forms of time-dependent interest. In many respects, this downside risk sharing component of the mortgage contract 20 resembles an insurance service, insofar as it seeks to limit the occupier's exposure to contingencies in which they would suffer a wealth loss. While many people would have one believe that residential real estate is an incredibly safe investment, at the individual home owner level nothing could be further from the truth. The simple fact is that a very large number of households realise both nominal and real losses when they come to sell 25 their homes. And yet in the current housing finance market, there is nothing that they can do about it - that is to say, they are forced to assume 100% of all the economic risks inherent in owning a home. Summary of the Invention 30 In accordance with a first aspect of the present invention there is disclosed a method of determining a wholly or partial collateral dependent finance provider's share of capital 12 .JU7 / fJt-fi-U appreciation of a collateral asset by varying a provision of a wholly or partially collateral dependent finance agreement between a finance provider and the owner of an asset used as said collateral and having an entry value, said agreement providing said finance provider's right to a share of any capital appreciation of said collateral asset as a 5 proportion of the collateral asset's capital appreciation and defining a quantum derived from said share of said capital appreciation required for the purposes of consummating said finance agreement, said method comprising the steps of: (i) using a data processing apparatus to compute said quantum due to said finance provider in accordance with said agreement, 10 (ii) using said data processing apparatus to compute whether said provision is in accordance with a Consumer Credit Code, or similar, and (iii) using said data processing apparatus to vary said provision if the computation of step (ii) determines that said provision is not in accordance with said Code, such that said provision is varied to the extent necessary to comply with said Code. 15 In accordance with a second aspect of the present invention, in addition to the above, there is also disclosed a method of generating a digitally encoded electronic signal representing either the wholly or partially collateral dependent finance provider's share of capital appreciation of a collateral asset as a proportion of the value of said collateral asset's 20 capital appreciation, or a quantum required for the purposes of consummating a wholly or partially collateral dependent finance arrangement (irrespective of whether such quantum is a payment from or by the recipient of the finance to the provider, or net of or includes payment, credit, offset or otherwise by the provider of the finance to the recipient, depending on the arrangement structure), such that the overall rate of return either paid by 25 the recipient of the finance, or the rate of return generated by the provider of the finance, does not exceed a predetermined maximum rate of return, said method comprising the steps of: (iv) inputting into said processing apparatus input data comprising a combination of: said predetermined maximum rate; a predetermined share of capital appreciation 30 (whether constant or a variable function of collateral appreciation or time); said entry value of said collateral for the purposes of commencing said financing arrangement; a 13 3U9 /A-AU-U9 final value of said collateral for the purposes of consummating said financing arrangement : and a time period over which the financial arrangement exists, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in any one of steps (v) - (vi) hereof; and 5 (v) instructing said data processing apparatus to: (a) return the rate of return associated with said wholly or partially collateral-dependent financial arrangement based on said predetermined share of capital appreciation; (b) determine if the quantum generated by (a) hereof exceeds said predetermined maximum rate; and, if so, (c) adjust said rights to said predetermined share of capital appreciation such that 10 the rate of return is equal to or less than said predetermined maximum rate; or (vi) instructing said data processing apparatus to: (d) return the quantum or quanta owing for purposes of consummating said financing arrangement assuming said predetermined maximum rate applies; (e) return the quantum or quanta owing for purposes of consummating said finance arrangement assuming capital appreciation 15 sharing absent said predetermined maximum rate; (f) return the actual quantum or quanta owing as the lesser of (d) and (e) hereof; or (g) return the same quantum or quanta (net of other flows if any) as returned in (f) hereof determined, at least in part, by reference to said predetermined maximum rate. 20 In accordance with a third aspect of the present invention there is disclosed, in addition to the first aspect, a method of determining a wholly or partrially collateral dependent finance provider's share of capital appreciation of a collateral asset by varying said collateral dependent finance provider's rights to said share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation 25 by reference to a predetermined reference index or reference appreciation rate, said method comprising the steps of: (I) inputting into data processing apparatus input data comprising a combination of: a first predetermined share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation and a second 30 predetermined non-zero share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation; a rate of said 14 collateral appreciation; a rate of said reference index appreciation and a reference rate, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in steps (II) - (III) hereof; (II) determining said appreciation share as said first predetermined value for the 5 proportion of said collateral appreciation which relates to said collateral appreciation rate which is less than said reference index appreciation rate or said reference rate; and (III) determining said appreciation share as said second predetermined value for the proportion of said collateral appreciation which relates to said collateral appreciation 10 rate which is greater than said reference index appreciation rate or said reference rate. In accordance with a fourth aspect of the present invention there is disclosed in addition to the first aspect, a method of generating a digitally encoded electronic signal representing either the wholly or partially collateral dependent finance provider's share of 15 capital appreciation of a collateral asset or a quantum required for the purposes of consummating the corresponding wholly or partially collateral dependent finance arrangement (irrespective of whether such quantum is a payment from or by the recipient of the finance to the provider, or net of or includes payment, credit, offset or otherwise by the provider of the finance to the recipient, depending on the agreement structure), in 20 each case said quantum varying with, or being determined by, reference to an index or a reference rate, said method comprising the steps of: (A) inputting into data processing apparatus input data comprising a combination of: a predetermined reference rate an entry value of said collateral for the purposes of commencing the financing arrangement; a final value of said collateral for the 25 purposes of consummating said financing arrangement or determining an amount owing under said financing arrangement; an initial reference index value determined at the time of determining said entry collateral value; a final reference index value determined at the time of determining said final collateral value; a first predetermined share of capital appreciation of said collateral asset as a proportion of the value of 30 said collateral asset's capital appreciation in the event said collateral appreciation rate is not above that of said reference index or does not exceed said reference rate; a 15 JV'Y IlI}AU-12J second predetermined non-zero share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation in the event said collateral appreciation rate exceeds that of said reference index or said reference rate; and a number of rate periods that the financing arrangement remains 5 outstanding, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in any one of steps (B) - (D) hereof; (B) instructing said data processing apparatus to: (a) determine whether the rate of appreciation of said collateral asset exceeds that of 10 said reference index; and (b) if said collateral appreciation exceeds that of said reference index as determined by (a) hereof, calculate the quantum of the finance provider's rights to capital appreciation by (c) said entry collateral value multiplied by said first predetermined share multiplied by the result of said final index value divided by said initial index 15 value less 1, plus said second predetermined share multiplied by the result of, said final collateral value less the result of said entry collateral value multiplied by said final index value divided by said initial index value, or (d) the same quantum determined in (c) hereof determined, at least in part, by reference to said first and second predetermined shares; or 20 (e) if said collateral appreciation does not exceed that of said reference index as determined by (a) hereof, calculate the quantum of the finance provider's rights to capital appreciation by returning (f) said first predetermined share multiplied by the result of said final collateral value less said entry collateral value, or (g) the same quantum determined in (f) hereof determined, at least in part, by reference to said first 25 predetermined share; or (C) instructing said data processing apparatus to: (h) determine whether said collateral appreciation rate exceeds that of said reference rate; and (i) if said collateral appreciation rate exceeds that of said reference rate as determined 30 by (h) hereof, calculate the quantum of the finance provider's rights to capital appreciation by (j) said initial collateral value multiplied by said first predetermined 16 DUY /A-AU-1)9 share multiplied by the result of, 1 plus said reference rate all raised to the power of said number of periods less 1, plus said second predetermined share multiplied by the result of, said final collateral value less the result of said initial collateral value multiplied by, 1 plus said reference rate all raised to the power of said number of 5 periods, or (k) the same quantum determined in (j) hereof determined, at least in part, by reference to said first and second predetermined shares; or (1) if said collateral appreciation rate does not exceed that of said reference rate as determined by (g) hereof, calculate the quantum of the finance provider's rights to capital appreciation by returning (in) said first predetermined share multiplied by the 10 result of said final collateral value less said initial collateral value, or (n) the same quantum determined in (in) hereof determined, at least in part, by reference to said first predetermined share; or (iv) instructing said data processing apparatus to output a digitally encoded electronic signal representing the quantum required for the purposes of consummating said 15 wholly or partially collateral dependent finance said quantum determined, at least in part, by reference to said first and second predetermined shares or any additional predetermined shares. In accordance with a fifth aspect of the present invention there is disclosed a method of 20 determining a repayment amount or the amount of a wholly or partially collateral dependent finance provider's rights to the share of capital appreciation of a corresponding said collateral asset securing the corresponding finance arrangement, said amounts being dependent on said collateral's state, said method comprising the steps of: (a) checking whether said collateral has been maintained in good repair or no worse 25 condition than when said financial arrangement was entered into; and (b) determining either the value or sale price of said collateral asset had it been maintained in good repair or in no worse condition than when said financial arrangement was entered into, or the value increment required above said collateral asset value or sale price to bring it to the value or sale price of said collateral asset 30 had it been maintained in good repair or in no worse condition than when said financial arrangement was entered into; 17 (c) determining a repayment or appreciation right amount dependent on a maximum of the value or sale price of said collateral asset or the value or sale price of said collateral asset reflecting that which would have had been achieved had said collateral asset been either maintained in good repair or a condition no worse than when the 5 financial arrangement was entered into; or (d) determining said repayment or appreciation right amount dependent on the value or sale price of said collateral asset plus said value increment required above said collateral asset value or sale price to bring it to the value or sale price of said collateral asset had it been maintained in good repair or in no worse condition than 10 when said financial arrangement was entered into. Brief Description of the Drawings A preferred embodiment of the present invention will now be described with reference to the drawings in which: 15 Fig. 1 is a schematic flow chart of a prior art mortgage origination and securitisation system, Fig. 2 is a schematic flow chart of the asset targeting, selection, servicing, securitisation and portfolio management system of the preferred embodiment, Fig. 3 is a feedback loop extracted from Fig. 2, 20 Fig. 4 is a flow chart which exemplifies the acceptance procedures, Fig. 5 is a block diagram of a computer system upon which the methods and systems of the preferred embodiments can be implemented, and Fig. 6 is a graph of a representative digitally encoded electronic signal or similar electromagnetic waveform. 25 Detailed Description The origination and securitisation of asset-backed securities such as mortgages is a common procedure in the capital markets today and Fig. 1 schematically illustrates some of the key processes involved. Traditional banks, for example, each have a mortgage 30 origination system 10 which utilizes the bank's balance-sheet capital 9 and 18 5097A-AU-D9 deals directly with borrowers 11. In recent years, borrowers 11 have also been able to deal directly with a mortgage broker 8 who in turn deals with the mortgage origination system 10 of a financial institution such as a bank. 5 Irrespective of with whom the borrower 11 deals, the typical result is a normal mortgage having a term and a "time-dependent" interest rate (which may be fixed or variable) and a security over the borrower's property. However, the value, and financial return or yield, realised on conventional mortgages by lenders and investors is completely independent of changes in the market value of the borrower's property, 10 (assuming no default in a falling market). Such mortgages are able to be bundled together, for example by being assigned to a unit trust which forms part of a mortgage securitization system 7, the units of which can then be sold to investors 19. This enables the original lender's balance-sheet 15 capital 9 to be returned to the lender and used as the lender wishes, but most typically to be recycled by the lender in the form of additional mortgages. Such conventional mortgages are a form of time-dependent interest-bearing finance and earn returns that are determined by lender-stipulated interest rates, which may be 20 fixed or floating. As such, the cash-flows supplied by these contracts are quite different from the returns realised on the collateral against which the mortgages have been secured (i.e., the underlying real estate assets). Accordingly, current mortgage origination systems are more-or-less indifferent to the specific characteristics of the collateral assets against which they lend. That is, contemporary lenders do not 25 distribute their housing finance in order to maximise the returns realised on the properties over which their mortgages are held, given the independence between the interest rate on their mortgage contracts and price changes on the underlying properties. Stated differently, contemporary lenders can in no way be described as "investors" in the underlying assets that serve as collateral for the purposes of the 30 financing contracts that they enter into with borrowers. Consequently, with the exception of rare situations such as events of default and foreclosure, contemporary lenders do not have any ongoing exposures to changes in the capital values of the collateral assets such as residential real estate. 19 5097A-AU-D9 Another important characteristic of the contemporary housing finance market is that the interest rates on any standard pool of securitised mortgages tend to be essentially homogenous. It is certainly true that the specific types of properties underlying any 5 such pool of mortgages, and indeed the performance of those properties, has no bearing on the interest rate levied by lenders when either issuing the finance or throughout the term of that finance. For example, if the Commonwealth Bank of Australia were to distribute, say, $250 million worth of standard variable home loans during any given month, these loans will carry the same interest rate. In this context, 10 the Commonwealth Bank of Australia is more-or-less indifferent to the geographic regions and dwelling types against which the mortgages are issued, subject to considerations associated with default risk and collateral loss. The key issues that concern the lender are those that impact on the borrower's ability to service the interest and principal repayments on their loan over time: i.e., their past earnings 15 history, future earnings prospects, credit worthiness, etc. The Commonwealth Bank of Australia may then choose to securitise these mortgages and sell them to investors around the world, who, given the homogenous nature of the instruments, will be indifferent to the fact that they have been originated against many different types of properties (indeed, no two properties in the pool will be the same) located in different 20 geographies. This is absolutely the case in countries such as Australia, the UK and the US, where all securitised loans must be "mortgage insured". The existence of mortgage insurance protects investors from the risks associated with income default by the underlying borrowers and the resultant prospect of collateral loss (i.e. the latter risks are in effect "sold" on to the mortgage insurer). 25 Given the housing affordability crises in many developed countries, which exists in spite of the current low interest rate environment, there is an undeniable need for more sophisticated forms of finance in which the consumers' cost of capital depends not exclusively on the traditional time-dependent interest rate, but rather relies on 30 (possibly non-exclusively) both positive and negative changes to the value of the underlying collateral assets (i.e. residential real estate) without necessarily invoking laws relating to co-ownership, joint-tenancy, partnership, or joint-venture in which the lending institution would have been judged to have acquired a direct equity interest in 20 5097A-AU-D9 the borrower's home. There must therefore be an equally strong need for the development of the fundamental technologies and specific financial methodologies that would enable such financing instruments to be widely distributed and underwritten on a perpetual basis using third-parties. 5 One complementary goal of the developments described herein is to enable the concurrent emergence of liquid capital markets that supply third-party investors with access to the return profiles of the abovementioned securitised state-dependent financing contracts, the performance of which is tied to movements in the (potentially 10 both capital and income) value of the underlying collateral assets. To highlight one specific example, it is anticipated that the detailed business technologies, methods, and systems described below will allow households around the world to dramatically cut the upfront costs of home ownership, or to release capital that is currently tied up in their existing dwellings, by drawing on "state-dependent" real estate equity finance 15 claims (and related variations thereof, including interest or rental yield bearing combinations), where the rate of return realised by the lending entity is related to the performance of the household's property. These creditors may then choose to package such equity finance instruments into a tradeable form, selling them on to secondary market investors, and, by doing so, potentially permit the development of even more 20 sophisticated financial claims (e.g. residential real estate derivatives). For the avoidance of doubt, the term "state- or collateral-dependent" as used herein in relation to debt contracts (albeit equally applicable to other types of financial arrangements, including traditional equity contracts), means that the lender's cost of 25 capital is dependent on the current value of an asset such as a residential property, and future positive or negative changes in the market value of that asset (including both capital and yield income components). The advent of such state-dependent financing arrangements, which do not, presently exist in any universal form in industries such as the mortgage market, relies very much on the development of the asset-selection, 30 processing, servicing, securitization and portfolio management systems, methods and technologies that can bind together the consumer and investor markets sides of the financing equation by supplying both constituencies with tractable value propositions. 21 5097A-AU-D9 In order to exemplify such financing arrangements consider a young, cash-constrained couple that wishes to start a family and move into a $200,000 home. Assume that they have scant savings and must take out a 90% loan, which implies that they enter into a $180,000 standard interest-bearing mortgage. If interest rates are at, say, 7%, as is the 5 case in many developed countries recently, this young couple will need to pay approximately $1,500 per month for the 30 year term of their loan, if they aspire to ever fully pay off their debt. With the escalating price of residential real estate in many OECD nations over the last decade, a significant number of low-income aspirants do not have sufficient disposable income to pay for a deposit, or adequate 10 ongoing earnings to service the interest and principal payments on a loan. They are, as a result, forced to delay their first home purchase and consign themselves to the spectre of rental accommodation for the foreseeable future (to say nothing of having to defer the prospect of starting a family as well). 15 Consider an alternative scenario in which this couple draws on both a standard home loan and a collateral-dependent form of equity finance (i.e., a loan that carries no interest rate, but rather recompenses the lender via exposures to the underlying property's gains and losses). In particular, suppose that a financial institution lends them, say, 20% (i.e., $40,000 of $200,000) of the appraised value of their property 20 upfront in return for rights to 40% of any potential price rises and 20% of any price declines in the market value of the property. As a consequence, this couple now only needs to fund $160,000 (i.e., $200,000 less $40,000). If, once again, a 90% loan-to value ratio is assumed, the size of the home loan falls by 20% from $180,000 to $144,000. A 7% interest rate, the ongoing interest and principal payments are cut 25 from around $1,500 a month to $1,200 a month; and hence the required deposit drops from $20,000 to $16,000. Since the loan-to-value ratio on the couple's interest bearing home loan has fallen from 90% to 72%, it is also likely that the need for mortgage insurance had been avoided. In addition, there may be a rise in the couple's disposable income once they move into their abode (as a result of their diminished 30 debt servicing obligations), a reduction in their risk of default, and a material increase in their liquid wealth at retirement since they no longer have to dedicate most of their savings to the otherwise inaccessible dwelling asset. And so, whereas this family 22 5097A-AU-D9 might once have been priced out of the home ownership market, buying a property has now become a much more realistic ambition. As discussed above, it is currently impossible for institutional investors to access 5 owner-occupied housing's risk-return profile in a well-diversified fashion or to trade home equity. This is especially unfortunate considering that residential real estate equity has performed extremely well in comparison to stocks, bonds and cash over the years, to say nothing of its attractive "correlation" characteristics (i.e. residential real estate moves in a very different direction to the other investment categories, thereby 10 opening the door to valuable diversification gains). Finally, residential property is the largest asset-class on earth-in fact, some multiples the size of both equities and fixed income-and was recently valued by The Economist magazine at in excess of US$50 trillion in developed countries alone. 15 The closest substitutes currently available to portfolio investors are Real Estate Investment Trusts ("REITS"). But almost all REITs are based on lumpy commercial real estate, and those with residential exposures are constrained to rental properties in idiosyncratic apartment groupings. Both the commercial and rental property markets are characterised by unique risk-return dynamics, and represent but a small proportion 20 of the biggest, and in many respects, most attractive, investment category of them all: owner occupied residential housing. The financial community should therefore view securitised pools of the aforementioned equity finance mortgages in a very positive light. Institutions are constantly searching for new categories of investments, particularly those with return profiles that differ from stocks and bonds. In the past, 25 this led to institutions allocating significant capital to private equity vehicles and hedge funds, despite the potentially high risks that these strategies involve. The owner occupied residential real estate market seems a natural place to look for an immense new set of asset returns and some extremely appealing diversification opportunities. Yet in order to transform owner occupied residential real estate into a genuine 30 investment class, one must first create the underlying financial arrangements that would form the basis of the securitised investment pools. In turn, these arrangements need to be satisfactory from both the consumer and investor perspectives. This is no trivial task, and the absence of any such market today is testament to the difficulties 23 5097A-AU-D9 that lie in wait. Once the so-called "optimal contracting" problem is solved (i.e. whereby a durable long-term contractual arrangement can be forged between, say, the debtor and creditor), one must still design the practical technologies and commercial processes that will successfully govern the identification, selection, administration, 5 processing, and servicing of these arrangements, while at the same time developing the securitization and ongoing portfolio management procedures that will enable the highly idiosyncratic individual assets to be converted into a marketable investment form. 10 Overview An integrated set of instruments, technologies and business systems are disclosed that collectively seek to achieve the following two key objectives. Firstly to provide consumers with a state-dependent financing instrument (i.e. where the cost of capital is tied to positive and negative movements in the value of the underlying collateral 15 asset, independent of any traditional, time-dependent interest rate that may or may not also form part of the arrangement) in which they can share with external third-parties some of the risks and returns associated with their otherwise indivisible investment in a typically illiquid and potentially very risky asset (e.g. the owner-occupied home). Secondly to provide external third-party investors with access to a diversified pool of 20 assets that will enable them to obtain cost-effective exposures to the underlying investment class, an outcome that is presently exceedingly difficult for such third parties to secure. As previously discussed, the societal benefits borne from engineering these new markets, and bringing together the independent consumer and investor constituencies in order to simultaneously satisfy the wants and needs of both, 25 are many and compelling. One prospective mechanism for developing such opportunities would be through the advent of a new form of housing finance described herein as the Equity Finance Mortgage ("EFM"), and which is different from that proposed in the abovementioned 30 Report of the Prime Minister's Home Ownership Task Force. The EFM instrument is a "hybrid" financial arrangement in the sense that it is legally classified as debt (since it is based on a standard mortgage contract), while also providing economic payoffs akin to an equity investment in residential real estate-i.e. where the return on the 24 5097A-AU-D9 mortgage is determined by formulae dependent upon the economic performance (e.g. capital appreciation and/or depreciation) of the housing asset against which it was lent. The aspects of the invention described hereafter detail previously undisclosed methods, instruments, technologies and business systems that relate both to the EFM 5 contract, and the myriad processes and systems required to enable the practical operationalisation of such contracts. These methods, instruments, technologies and business systems are, however, equally applicable to any other form of financial arrangement that has a "collateral-dependent" payoff, and the detailed description below relating to EFMs is not intended to be limiting. 10 The business systems, technologies and processes described in Fig. 2 take the form of five modular systems, each controlled by an integrated computerised system (represented in Fig. 2 as a square), many components of which can function in a "real time" automated fashion, that together form what is known as the "Asset Targeting, 15 Acquisition, Servicing, Securitisation and Portfolio Management System", hereafter the "Overall System" 600. This in turn is typically overseen by a human operator known as the System Manager ("SM"). As discussed, the chief objective of the Overall System 600 is to enable the successful 20 distribution of EFMs (used here as an example of a collateral-dependent financing arrangement) to consumers by way of drawing on financing or "underwriting" capital supplied by third-party investors, and the subsequent packaging of those individual EFMs into large pools or portfolios, the characteristics of which are satisfactory to the preferences of third-party investors who may or may not have supplied the original 25 financing capital. In relation to the latter point, the uncertainty as to whether the third party investors are the same entities that provided the original financing capital is attributable to the fact that that the Overall System 600 can accommodate either a one- or two-stage capital provision process. In the one-stage example, capital can be raised from investors upfront and used to underwrite the distribution of the EFMs to 30 consumers. As the capital is exhausted, the EFMs are placed into a portfolio held by the same entities that supplied that capital in the first place. These entities are, therefore, also the end-user investors. In the two-stage alternative, the Overall System 600 incorporates "intermediating" financiers or "warehousers" that provide short-term 25 5097A-AU-D9 underwriting capital for the purposes of enabling the distribution of the EFMs. However, once all this capital has been used up, the Overall System 600 packages the EFMs into a pool that is then sold to a class of new investors. After the interests (e.g. shares or units) in this packed portfolio of EFMs have been sold to third-parties, the 5 original provider(s) of the financing capital (i.e. the warehousers) are repaid, and recompensed for supplying their intermediation service. The five independent yet fully integrated systems of the Overall System 600 are outlined below. To the extent that live electronic interfaces between systems or 10 components within the system either temporarily fail or are otherwise inoperative, at each point relevant data can be output via an electronic interface to SM (or other human operator) and subsequently input into the relevant system requiring such data by SM (or other human operator), again via electronic interface. These systems and their related database interactions, are summarised as follows: 15 1. The "Target Investment System" 100 The initial role of the Overall System 600 is to continuously or periodically collect the many and varied preferences of its end-user investors (i.e. those that are going to be the ultimate holders of the EFM portfolios or those that are managing investments in 20 EFM portfolios on behalf of the ultimate end user investors), such as their desired portfolio-level risk (or expected return volatility), return and correlation outcomes, and the types (e.g. fully detached properties or apartments) and locations (e.g. Sydney or Melbourne) of the underlying collateral assets that these investors would like to see in the final EFM portfolio, from its Investment Information Providers ("IIPs") 101. 25 The IIPs 101 is able to also furnish other information of relevance to the future performance of the EFM portfolio, including past, present and forecast data of a macroeconomic, microeconomic, or real estate related nature. This information, which is continuously or periodically updated through time, is inputted into a central electronic database (the "Investment Information Database", or "IID" 102). The IID 30 102 is maintained not just for the need to record investor preferences, but for the dominant purpose of providing the Target Investment System ("TIS") 100 with the inputs necessary to determine the "idealised" (i.e. target) portfolio characteristics of the actual originated EFM portfolios (e.g. the preferred portfolio weights to various 26 5097A-AU-D9 geographies, property-types and consumer characteristics). Using a direct electronic connection, the TIS 100 extracts the information it requires from the IID 102 to dynamically or iteratively estimate (via a series of TIS 100 embedded algorithms) the desired portfolio elements and overall attributes of the target EFM pool and/or 5 periodically set EFM application acceptance requirements to achieve the attributes of the target EFM pool. These are in turn continuously or periodically updated as new information is inputted into the lID 102 over time. The TIS' 100 outputs are then transmitted by direct electronic feeds to the Target Investment Database ("TID") 112, which is connected via a real-time electronic interface to the Asset Origination 10 System ("AOS") 200. As explained hereafter, the AOS 200 utilises its suite of automated decision-rules to compare the investment characteristics of EFM applications on an individual or batch basis with either the idealised portfolio characteristics of the TID 112, or the periodically-set EFM application acceptance requirements of the TID 112, in order to process those EFM applications in real time 15 or on a batch basis and ultimately generate a final EFM pool that either matches the TID 112 attributes to the maximum extent possible or doesn't exceed any thresholds or acceptable error bands stored within the TID 112, thereby satisfying the preferences of its end-user investors or investment managers. Further, utilising its real-time electronic connections with the Asset Origination Database ("AOD" 202), 20 the TIS 100 is able to periodically reset TID's 112 EFM application acceptance criteria (initially set by reference to IIP 101 only) such that AOS 200 additions to the EFM actual portfolio will result in the overall portfolio either more closely approximating TID's 112 idealised portfolio or remaining within acceptable error bands of the TID's 112 idealised portfolio. In resetting the TID 112 EFM application 25 acceptance criteria, TIS 100 is able to also, via electronic links to AOD 202 or the Asset Warehouse Database ("AWD" 210), have consideration for the frequency of such resets by using as a predictive tool to determine the rate at which EFMs have, or are being, originated by AOS 200. The frequency of resets to the TID 112 EFM application acceptance criteria are important to the successful operationalisation of the 30 system as too frequent resets have an adverse impact on, or hinder, the ability of distribution agents to market and communicate EFM acceptance requirements to end consumers and also potentially result in unnecessarily high criteria communication (or advertising) costs. 27 5097A-AU-D9 One final responsibility of the TIS 100 is to respond to the Investment Mandates ("IM") of the Asset Management System ("AMS") 500, and through data collected from the IID 102 output dynamic updates to the TID 112 that provide the AMS 500 5 with its target portfolio characteristics (once again, via direct electronic connections between the AMS 500 and TID 112).This enables the AMS 500 to process its own decision-rules and undertake the actions required to ensure that the investment pools' actual performance converges as closely as is possible to the preferences of the various investors in those pools. 10 2. The "Asset Origination System" 200 Utilizing its real-time electronic connections with the TID 112, AOD 202, and AWD 210, the AOS 200 automatically manages the issuance of EFMs to end-user consumers via its distribution agents (Mortgage Market Information Providers, or 15 "MMIPs" 201) with reference to various static and dynamic feed-back and feed forward decision-rules. Such rules ensure that the actual characteristics of the EFMs that it sources from consumers, and, in particular, the attributes of both the underlying collateral assets (in this case, residential properties) and the consumers themselves, match within acceptable error bands of the TID's 112 idealised portfolio and/or 20 application acceptance preferences, thereby ultimately giving rise to a realised pool of EFMs that will be acceptable to third-party investors or investment managers. This involves establishing complex asset-selection rules, based on a wide range of geographic, consumer and property related portfolio preferences, which determine on a substantially automated basis (real time or batch) -whether EFM applicants (i.e. 25 consumers) are accepted or rejected by the MMIPs 201. As an illustration of the systems' ability to interact with SM should live electronic links between system components temporarily fail or not exist, the AOD 202 may output by electronic interface to SM or other human operator the characteristics of the 30 EFMs sourced by AOS 200 in response to periodically set (and potentially advertised) underlying collateral (and potentially consumer) application acceptance criteria contained in the TID 112 which determine whether applications are advanced through AOS 200. To the extent that the characteristics of the EFM portfolio fall outside 28 5097A-AU-D9 acceptable error bands stored in TID's 112 idealised portfolio preferences, or are expected to fall outside such acceptable error bands or preferences if AOS 200 continues to accept applications based on a specific set application acceptance criteria, the SM is able to periodically or in real time adjust such application acceptance 5 criteria (and preferably communicate such adjustment to consumers and/or MMIP 20 1) by reference to information output from TID 112 and AOD 202 such that further additions to the EFM portfolio will result in the overall portfolio more closely approximating TID's 112 idealised portfolio. 10 Over and above such use of static and dynamic feed-back and feed-forward decision rules, in conjunction with its real-time electronic interfaces with the TID 112, AOD 202, and AWD 210, the AOS 200 also encompasses a dynamic MMIP 201 remuneration system that operates to further improve the probability of the AOS 200 achieving its portfolio construction objectives. In particular, the AOS 200 calibrates 15 dynamic MMIP 201 remuneration strategies that provide the distributors of EFMs with the strongest possible motivation to issue the contracts in line with the preferences stored in the TID 112 and, ultimately, end-user investors, while simultaneously refining the MMIPs' 201 financial incentives in response to their observed performance over time. Further, the AOS 200 in conjunction with TID 112 20 and AOD 202 calibrates dynamic or periodic MMIP 201 communication strategies that provide the distributors of EFMs (and/or prospective EFM applicants) with the underlying collateral asset criteria (and potentially consumer criteria) by which applications will be accepted so as to provide the greatest likelihood of consumer demand and/or distributor driven applications being in line the end-user preferences 25 stored in TID 112. As part of MMIP 201 communication, the AOS 200 is capable of receiving summary input data from MMIP 201 describing the collateral underlying an EFM application (such as post code, whether it is a house or home unit (condominium), indicative value, etc.) and in real time outputting whether such application indicatively meets the preferences of TID 112. This is an important feature 30 as it ensures MMIP 201 efficiency when seeking to distribute EFMs to end user consumers by not requiring full application information in order to convey indicative acceptance. 29 5097A-AU-D9 As a final task, the AOS 200 interacts with the Underwriting Capital Providers ("UCPs" 211), and, once an EFM application has progressed through the AOS'200 decision-rules and been formally approved, administers the transfer of capital from the UCPs 211 to each applicant (via the MMIPs 201) that has successfully sought 5 finance. The security that is provided by the applicant in exchange for the finance is the underlying financing arrangement (in this case, an EFM), which is held by the UCPs 211 .The characteristics of each EFM are stored in the AWD 210 for the duration of the warehouse period (e.g. until such a time as all the required EFMs are sourced, and the final portfolio is closed, or, in the event of a two-stage capital 10 provision process, the portfolio is securitised or otherwise sold to third-party investors that are independent of the UCPs 211). The AOD 202 provides the AOS 200 with a wide range of inputted application data from the MMIPs 201, who are responsible for interfacing with applicant. The EFM 15 application information sourced by the MMIPs 201 is inputted into the AOD 202 either by way of a real-time electronic web-based interface, or manually upon receipt of a fax-based application form, and covers data relating to the characteristics of the applicant (e.g. age, current residential address, occupation, income, marital status, first mortgagee, credit history, prior ownership experience etc), the current or sought-after 20 dwelling's attributes (e.g. location, price, purchase method (auction or private-sale), land size, land-to-dwelling ratio, number of bedrooms, bathrooms, etc), and MMIP 201 specific variables (e.g. distributor type (mortgage broker or financial planner), corporate membership, geographic location, current remuneration structure, EFM distribution history, etc). The AOS 200 has a real-time electronic connection with the 25 AOD 202, and upon receiving a transmission of EFM application data from the AOD 202, subjects this information to a series of static and dynamic feed-back and feed forward decision-rules. The dynamic decision-rules involve the AOS 200 making real-time or batch comparisons between the application data and the portfolio preferences stored in the TID 112. While acceptance of EFM applications is able to 30 simply require that the pool of EFMs meet acceptable error bands stored in TID 112, at its most granular level, such comparisons can ensure that every individual accepted application improves the quality of the overall pool of EFMs with reference to the preferences of end user investors or investment managers. Alternatively, the AOS 200 30 5097A-AU-D9 is able to make comparisons between the application data and the periodically set or modified (and potentially MMIP 201 communicated) underlying collateral (and potentially consumer) application acceptance criteria contained in the TID 112. In this case batches or tranches of applications meeting a set criteria will be accepted 5 implying a less granular approach, but, nonetheless one that ensures the acceptable error bands stored in TID's 112 idealised portfolio preferences are met. If the application data successfully progresses through all of the AOS' 200 decision-rules, the AOS 200 approves the application and is able to determine, subject to a series of algorithms, the application's pricing and specific terms. This information is then 10 relayed back through the AOD 202 to the MMIP 201 that had sourced the application in the first place. Once the transaction is settled, the relevant data pertaining to the applicant, property type, MMIP 201 agent, and the contract terms are transmitted from the AOD 202 though the AOS 200 to the AWD 210, which holds all information relating to formally approved EFM applications. The AWD 210 also captures 15 additional data provided by the UCPs 211, such as the amount of underwriting capital, and proportion of capital that has been drawn-down during the EFM distribution period. If, on the other hand, the EFM application does not successfully pass through the AOS' 200 decision-rules, a rejection signal is sent by the AOS 200 through the AOD 202 to the MMIP 201. For the purposes of continuously refining its decision 20 rules, the AOS 200 nevertheless stores all rejected application data in the AOD 202. 3. The "Asset Securitisation System" 400 At a time determined either automatically via pre-specified parameters (e.g. once a certain value of EFMs have been sourced, or a particular period of time has elapsed), 25 or on a discretionary basis by the SM, the Asset Securitisation System ("ASS") 400 uses its real-time electronic interfaces with the TID 112 and the AWD 20 to compare the characteristics of the EFMs that have been actually sourced with the updated investor preferences contained in the TID 112 (recall that these are being continuously refined over time as new information is inputted into the IID 102). The ASS 400 30 then processes a suite of static and dynamic feed-back and feed-forward decision rules to determine what actions if any are required in order to optimise the structure of the investment pool comprising the originated EFMs in a manner that most closely matches the preferences of the end-user investors (as stored in the TID 112). This 31 5097A-AU-D9 involves the ASS 400 transferring the originated EFM assets from a warehouse vehicle controlled by the UCPs 211 (who in this scenario would have supplied the AOS 200 with underwriting capital on a relatively short-term, intermediation basis) into the final investment portfolio that is to be marketed to third-party investors. 5 Alternatively, in the case of a more simple one-stage process (whereby the original providers of the underwriting capital are the same investors who intend to hold onto the EFM assets over the long-term), the ASS 400 simply calibrates the characteristics of the existing investment pool in which the EFM assets have been held for the duration of the origination process. Hereafter the procedure by which the ASS 400 10 evaluates the originated pool of EFMs and determines the final investment pool's characteristics will, for ease of description, be referred as the "securitisation" process. Once the securitisation process has been completed, the ASS 400 transfers all of the relevant EFM contract data from the AWD 210 and the Asset Servicing Database 15 ("AServD") 302 onto the Asset Management Database ("AMD") 502, which concurrently collects information from the Investment Market Information Providers 501, or "IMIPs" (e.g. primary and secondary market participants, such as stock brokers, investment analysts, and other capital market information providers). This latter suite of information will include the final pool registry, ongoing registry data, 20 and secondary-market trading information, such as the pool's price, volume, volatility and yield. Concurrently, the ASS 400 determines the remuneration of the UCPs 211 in the event that they are holding the EFMs assets on a short-term intermediation basis-via proceeds realised from the securitisation event. 25 4. The "Asset Servicing System" 300 There may be a significant period of time between the date on which an EFM is first distributed to a consumer and the date on which it is finally securitised (e.g. over 12 months). Throughout this period, and for the duration of the EFM contract's life, the Asset Servicing System ("AServS") 300 is responsible for all of the EFM contract's 30 administration requirements, which are outsourced to Asset Servicing Information Providers ("ASIPs") 301. These administrative requirements involve, amongst other things, variations to the contract's terms, events of default, prepayments, renovations to the properties, repayments, refinancings of related contracts (e.g. a first, interest 32 5097A-AU-D9 bearing mortgage) and, subsequent to discharge, the processing of cash flows through to end-user investors. Any data relating to the EFM contract servicing events is electronically inputted by the ASIP's 301 into the Asset Servicing Database ("AServD") 302, which then relays the details onto the AServS 300 via its own 5 electronic interface. In turn, the AServS 300 electronically interacts with both the AWD 210 during the warehouse period, and the AMD 502 once the EFMs have been securitised in order to manage the ongoing EFM servicing requirements of both securitised and non-securitised EFMs. The AServS 300 also interfaces indirectly with the AOS 200 via the AServD 302 in order assist with the AOS' 200 management of 10 the MMIPs' 201 ongoing remuneration during the life of the EFM loans. 5. The "Asset Management System" 500 Post securitisation, the Asset Management System ("AMS") 500 employs a suite of static and dynamic feed-back and feed-forward decision-rules to monitor the risk and 15 return characteristics of the listed and unlisted securitised EFM pools (via its electronic connection with the AMD 502) in order to ensure that their behaviour and performance is consistent with the expectations of investors in those pools, as stipulated by data and information collected electronically from both the IID 102 and the TID 112. 20 After extracting information from the AMD 502, IID 102 and the TID 112 and processing this through its decision-rules, the AMS 500 determines what changes if any need to be made to the terms and conditions of the EFM contracts underlying the pool (e.g. in order to stimulate certain consumer actions). Alternatively, in the case of 25 an investment pool that is open-ended with new tranches of EFMs continuously fed into it over time, what modifications are required to any additional tranches of assets in order to optimise the pools' future performance. In the event that the AMS 500 concludes (based on its rules) that the terms of the pools' underlying contracts should be altered, it will electronically signal these changes through the AServD to the 30 AServS 300, which gives effect to the requested changes and informs the AMD 502 of their consequences. If the pool is open-ended and changes to the characteristics of originated EFMs are required, the AMS 500 will electronically signal these changes to 33 5097A-AU-D9 the TIS 100 via the IID 102 and thereby influence the actions undertaken by the AOS 200 and, ultimately, the composition of EFMs that are sourced by the MMIPs. Fig. 2 provides an overview of the end-to-end applicant to investor composite 5 technological system and processes that lies at the heart of the Overall System 600. Detailed comments regarding the individual systems 100-500 are relegated to the next section of the application. Note that while the systems (and their corresponding processes) are related, each individual system serves a distinct commercial objective and thus can be independently deployed. That is to say, the automated technology can 10 be developed sequentially with the modular components of the Overall System 600 developed to date operating as a single technological architecture. The data processing capabilities and technological structure of the Overall System 600 can be distinguished from prior art mortgage origination and securitisation systems in 15 several different ways. First, the Overall System 600 electronically integrates on an end-to-end basis the otherwise independent mortgage identification, screening, selection, processing, securitisation, servicing and ongoing portfolio management system requirements, 20 which in the prior art are divided into independent utilities that do not typically interact with one another. Second, the Overall System 600 has been conceived to enable the identification, screening, selection, securitisation and servicing of a class of financing arrangements 25 (using real-time automated decision-rules) that supply risk and return payoffs that are fundamentally different from that which is associated with prior art mortgage instruments. In particular, prior art forms of interest-bearing finance (e.g. home loans) earn returns that are determined by time-dependent interest rates, which are fixed or floating. As such, the cash-flows supplied by these contracts are quite different from 30 the returns realised on the collateral against which they have been secured (i.e. owner occupied residential real estate). By way of contrast, an EFM is a contract that provides recompense to the financier through rights to future changes in the value of the underlying asset that has been used as collateral. The cost of capital to the 34 5097A-AU-D9 consumer is not therefore exclusively time-dependent, as in the case of the prior art mortgage market, but rather relies crucially on the future price performance of the property in question. That is to say, the EFM's cost of capital is "state-or collateral dependent". Accordingly, while prior art mortgage origination and securitisation 5 systems are almost entirely indifferent to the specific characteristics of the housing assets against which they lend (especially given the existence of mortgage insurance), this is the primary area of interest for the Overall System 600 (since the attributes of the collateral asset itself have a first-order influence on the performance of the financing arrangements). 10 Third, the individual rates of return attributable to the state-dependent financing arrangements that comprise a portfolio of EFMs are inherently heterogenous, whereas the interest rates attributable to the individual mortgages that make up a standard mortgage pool are homogenous. As discussed previously, the Commonwealth Bank of 15 Australia may in any given month distribute, say, $250 million worth of floating-rate mortgages, all of which will carry exactly the same interest rate. In this context, the Commonwealth Bank of Australia will be more-or-less ambivalent as to the geographic regions and dwelling types against which the mortgages are issued. It may then choose to securitise these mortgages and sell them to investors all around the 20 world, who, given the uniform nature of the instruments, will be indifferent to the fact that every property that serves as security will be quite unique in terms of both its geographic location and its physical characteristics. In comparison, $250 million worth of state-dependent EFMs forms a pool of highly idiosyncratic assets, each of which will have very different expected rates of return. Furthermore, the geographic 25 regions and dwelling types against which the EFMs are issued will have a profound influence on the portfolio's expected performance (to say nothing of the fact that they represent claims over Australian residential real estate, which may perform in a very different fashion to other property markets overseas, and hence be of limited interest to offshore investors). Consequently there is a need to identify, screen, select, 30 securitise, service and portfolio manage EFM-like assets in a much more sophisticated fashion to that which takes place in the prior art mortgage market. This need is met utilising technologies which dynamically regulate the asset-selection process through time. By way of example, while the Commonwealth Bank of Australia might regard it 35 5097A-AU-D9 as acceptable to issue $250 million worth of mortgages in Western Sydney, it is unlikely that investors in a $250 million EFM pool would regard having all their assets located in such a concentrated geographic area as being acceptable. 5 Fourth (and as a result of point three), the Overall System 600 employs an extensive suite of static and dynamic feed-back and feed-forward decision-rules to control the distribution of EFMs through time subject to the target portfolio preferences of third party investors. The Overall System's 600 chief objective is to maximise the probability that the attributes of the approved pool of EFMs will be in line with those 10 that were requested by the end-user investors (whose wishes are represented by the use of an "idealised" or target investment portfolio). As discussed above, since the returns to the EFMs rely on the performance of a highly heterogenous collection of collateral assets (i.e. owner occupied residential real estate), the process by which these assets are screened and selected is vastly more complicated than the 15 methodologies by which traditional banks issue prior art interest-bearing mortgage contracts. As a final point of differentiation, the Overall System 600 encompasses an integrated asset management system that employs static and dynamic feed-back and feed 20 forward decision-rules and process control systems to, automatically modify the terms and conditions of the underlying financing arrangements, and the characteristics of future tranches of assets that are added to the pools, with the objective of minimising the observed differences between the performance of those pools and the preferences of end-user investors. This relies crucially on integrated electronic interfaces between 25 the asset management system, various memory banks that store information regarding the performance of the pools and the requirements of investors, and other critical control systems that manage the production of the target portfolio, the selection of the underlying assets, and the servicing of those assets through time. 30 Explanation of Individual Aspects 1. State-Dependent Financing Arrangements The following is a description of one or more embodiments of the EFM 36 5097A-AU-D9 In accordance with one embodiment of the EFM, creditors offer to provide consumers with finance equal to a percentage (e.g. 20%) of the total value of their collateral assets (e.g. an owner-occupied property) on a zero-interest basis in return for eventual repayment of: 5 (1) the principal amount lent; (2) plus rights to a pre-determined share of any capital appreciation on the collateral asset (e.g. 40%); or (3) less rights to a pre-determined share of any capital depreciation on the collateral asset, 10 as determined on the date of discharge or repayment of the total amount owing under the EFM, which will be specified in the financing documentation, and might typically occur on the sale of the asset in question or upon the election of the borrower. 15 For the purposes of the present explanation, the mathematical relationship between the proportional value of the financing supplied by the creditor (i.e. the principal amount lent as a fraction of the value of the collateral asset at the time the financing was extended) and the creditor's rights to a share of the collateral asset's future capital appreciation or capital depreciation (whichever eventuality is relevant as at the date of 20 the discharge of the total amount owing under the EFM), can be expressed as the ratio X:Y:Z, where X denotes the proportional value of the financing supplied by the creditor, Y refers to creditor's rights to any future capital appreciation of the collateral asset as a proportion of the value of that collateral asset's total capital appreciation; and Z denotes the creditor's rights to any future capital depreciation of the collateral 25 asset as a proportion of the value of that collateral asset's total capital depreciation. Accordingly, a 1:2:1 EFM cost of capital would indicate that for every percentage point of finance that the creditor supplied, it would be entitled to two percentage points of all future capital appreciation and one percentage point of all future capital 30 depreciation. Note, however, that more sophisticated representations of this general case are easily envisaged, particularly those incorporating time-varying claims to the capital appreciation or depreciation on the underlying collateral asset, and/or arrangements that encapsulate a time-dependent interest rate or proxy for the 37 5097A-AU-D9 estimated income yield on the collateral asset (where the combined capital and income returns would represent the total economic performance of the asset in question). By way of illustration, the following EFM cost of capital alternatives can be practically deployed: 5 (1) a 1-1-1 EFM cost of capital; (2) a 1-1-0 EFM cost of capital; (3) a 1-2-1 EFM cost of capital; (4) a 1-2-2 EFM cost of capital; (5) a 1-2-0 EFM cost of capital; 10 (6) a 1-3-1 EFM cost of capital; (7) a 1-3-2 EFM cost of capital; (8) a 1-3-3 EFM cost of capital; (9) a 1-3-0 EFM cost of capital; or (10) any one of the above in combination with a standard time-dependent interest 15 rate or rental yield. A variation to the pre-determined sharing of capital appreciation is one where the creditor's rights to a share of the collateral asset's future capital appreciation is capped by reference to an index or an upper return bound. If such cap is reached or exceeded, 20 claims to the capital appreciation as a proportion of the value of that collateral asset's total capital appreciation, Y, may be retrospectively varied so that it is not. Further, to the extent that the collateral appreciates in line with say an index, Y may have one value associated with a collateral appreciation rate at or below that of a limit or index and another applicable for a collateral appreciation rate that exceeds a limit or index. 25 Unlike contemporary housing finance, whereby the rate of return is known or levied by lenders when issuing the finance or throughout the term of the finance, collateral dependent (or partly collateral dependent) finance returns are based on the highly idiosyncratic appreciation or depreciation of the collateral underlying the finance and 30 are not known until such point when the appreciation or depreciation is determined for purposes of settling an amount owing under the financial arrangement. As such, the rate of return to the financier or the effective rate paid by the recipient of the finance is not known until such time as the future value of the collateral is determined. In the 38 5097A-AU-D9 event that the provider of the finance chooses to cap the cost or effective rate of the finance, which may be as a result of legislative requirements limiting the effective annual percentage rate, there is a strong need for specific financial methodologies and systems to ensure such cap is not exceeded. 5 A capped return may be implemented by means which preferably include one of the following embodiments: (1) As outlined above, a capped return may be achieved by retrospectively determining or varying a predefined creditor's claim to a share of the capital 10 appreciation on the collateral once the appreciation or future collateral value is known. This preferably involved the steps of calculating and returning the rate of return associated with the wholly or partially collateral-dependent financial arrangement based on a predetermined share of capital appreciation and then checking if such rate exceeds or is less than the capped rate. In the event that the 15 rate based on an initial predetermined capital appreciation share exceeds the capped rate, then the otherwise predetermined capital appreciation rate is adjusted such that when applied to a known collateral value, the capped rate is either achieved or not exceeded; (2) Determining both the quantum or quanta owing for purposes of consummating 20 the financing arrangement assuming the capped rate applies and the quantum or quanta owing for purposes of consummating the finance arrangement assuming a predetermined capital appreciation sharing absent the capped rate. In the event that there are only payments from the borrower to the provider of the finance, determining that the amount owing as the lesser of the two amounts would 25 achieve the capped rate. There are a number of other embodiments which achieve the same net amount owing for the purposes of consummating a collateral dependent (or partly collateral dependent) financing arrangement which ensure that the capped rate is not exceeded. These include the borrower paying the financier the full amount owning based on a predetermined 30 appreciation share and the financier paying, crediting or offsetting to the borrower an amount required to ensure the net amount is such that the capped rate is not exceeded (also refer to (3) below). Such amounts can be determined by iterative processes which narrow in on a solutions, maximum and minimum 39 5097A-AU-D9 tests, checking procedures and the setting of toggles which change dependent on stipulated criteria; and (3) For a given appreciation sharing right of the financier, determining the maximum collateral value or collateral appreciation for purposes of concluding 5 the financing arrangement which achieves the capped rate. The capped rate can then be achieved by setting the capital appreciation sharing beyond this point to zero or ignoring any further excess appreciation. As part of incentivising the recipient of collateral dependent (or partly collateral 10 dependent) finance to maximize the value of the underlying collateral asset, or alternatively set contractual terms which increase the likelihood of the finance provider's return requirements being met, it may be necessary to vary the finance provider's claims to capital appreciation (or depreciation) by reference to an index or a reference rate. 15 For example, to the extent that the collateral appreciates in line with say a local area index, the recipient of finance may be content sharing 40% (that is, Y, = 40%) of the capital appreciation, but, to the extent there is an effort made by the finance recipient to best ensure the collateral appreciates more than the local area index, is only happy 20 sharing say 30% (that is Y 2 = 30%) of excess appreciation over and above that of the reference index. Such an approach also provides added incentive to the recipient of the finance to maximize the value of the collateral and in doing so maximize the return to the provider of the finance. Further, by setting the finance provider's share of collateral appreciation high, Y 1 , for low levels of capital appreciation and lower, Y 2 , 25 for high levels of appreciation, the likelihood of achieving the finance provider's minimum required return is significantly increased while at the same time ensuring that the finance receipt's cost of finance is not excessive. Taking the example above where Y has two predetermined values, the collateral has 30 an initial value, Vi, for purposes of commencing the financing arrangement, the collateral has a final value, Vf, for purposes of concluding, or forming part of the basis for concluding the financing arrangement, and the reference index has a value, I,, at the time of determining Vi and a value, 12, at the time of determining Vf, the 40 5097A-AU-D9 quantum of the capital appreciation share of the finance provider could be mathematically presented as Vi(1 2 /1 1 - 1) x Y 1 + [Vf - Vi(1 2 /1i)] xY 2 . The preferred application of this conditional appreciation sharing involves first checking whether Vf/Vi is greater than 12/11, if so then the quantum of the finance provider's rights to 5 capital appreciation is as expressed above, otherwise the second appreciation share,

Y

2 , never comes into play and the quantum could simple be mathematically presented as (Vf- Vi) x Y 1 . Where the finance provider's claims to capital appreciation vary as a function of the 10 rate of such appreciation or by reference to a reference rate, R, and n represents the number of rate periods that the financing arrangement remains outstanding, taking the example above where Y has two predetermined values, the quantum of the capital appreciation share of the finance provider could be mathematically presented as Vi x [(1+Ri)" - 1] x Yi + [Vf - (Vi x (1+R)")] x Y 2 . 15 The above examples are illustrative of the capital appreciation share, Y, having only 2 predetermined values. Other embodiments incorporate greater numbers of predetermined collateral appreciation shares each of which apply to either reference rates of collateral appreciation or reference indexes or a combination thereof. 20 In another variation to the pre-determined sharing of capital depreciation the provider of finance shares in depreciation in some proportion only after the value of the collateral asset declines beyond a certain value. For example such a certain value may be where the value of the collateral falls below the amount of total financial 25 accommodation provided against the collateral. In this case a one for one sharing beyond this point results in the amount owing being simply the value of the collateral (less any prior ranking finance). In the event that prior ranking finance exists, the amount owing could be limited to zero. 30 One crucial implication of the state-dependent nature of the EFM's cost of capital is that it can give rise to contingencies whereby the cost of this form of finance to the borrower over long periods of time is either negligible, nil, or negative. For example, if the value of the borrower's collateral asset has not increased as at the date of 41 5097A-AU-D9 discharge, the borrower will simply repay the original loan amount that was extended to it by the creditor on the date that the borrower entered into the EFM arrangement, with no additional interest costs. The EFM would therefore have been a free form of finance. If, to take another example, the value of the borrower's collateral asset has 5 fallen as at the date of discharge, the creditor may assume some of these capital losses and either reduce the value of the original loan amount, make payment to the borrower or provide other credit or set off as appropriate. This would result in an entirely unique situation whereby the cost of the EFM finance to the borrower would be negative: that is, there would be a value transfer from the creditor to the borrower. 10 There is not any current form of housing finance that encapsulate such features, and which could give rise to frequent eventualities whereby the cost of that finance to the borrower is negative. Other embodiments of the method used to determine the finance provider's unique 15 participation in, or assumption of, capital losses (in the absence of a default event) by way of either directly determining an adjusted amount owing or using the capital loss sharing amount to either reduce the value of the original or outstanding finance amount required to settle a financing arrangement, make payment to the borrower or provide other credit or set off, are described in more detail below. 20 Rights to (or an obligation to assume absent a default event) a share of any capital depreciation on the collateral asset preferably include, and for the purposes of explanation are mathematically represented as follows: (1) A pre-determined share of capital depreciation, Z, multiplied by the capital 25 depreciation as measured by an initial value of the collateral for purposes of commencing the financing arrangement, Vi, less the final value of the collateral for purposes of concluding, or forming part of the basis for concluding the financing arrangement, Vf, in which case the depreciation share could be mathematically presented as Z(Vi - Vf). There are a number of 30 other mathematical representations and depreciation sharing mechanics which could be used by those expert in the art. For example, if Z were equal to LVR (see below) this quantum could also be determined in accordance with the 42 5097A-AU-D9 various representations outlined in (2) below. Z could also vary as a function of the collateral depreciation as outlined in (4) below; (2) The initial principal advanced by the financier, P, multiplied by the percentage decline in the value of the collateral. Where the percentage decline in the 5 collateral is expressed as (1 - Vf/Vi), this could also be expressed as P (1 Vf/Vi). Further, where P is expressed as a percentage of Vi, LVR, the same quantum could be expressed as LVR (Vi-Vf). As can be seen there are numerous mathematical representations of this amount. (3) The amount determined in (2) above could be multiplied by a pre-determined 10 multiple of LVR if capital depreciation sharing in the financing contract were expressed as a multiple of the P to Vi ratio; (4) A pre-determined sharing of capital depreciation which changes as a function of the depreciation incurred by the collateral. One such embodiment of this can be illustrated by the following. If the collateral value at commencement of 15 the financing arrangement is represented as 100% and the capital depreciation share as Z, then the depreciation share could, for example, be Zi between collateral value 100% and 90%, Z 2 between collateral value 90% and 80%, and so on. (5) The pre-determined share of capital depreciation could be such that the 20 finance provider does not participate until such point that the collateral has depreciated below a pre-defined level, value trigger, T. Such trigger could for example be when the depreciation amount is equal to borrower's equity investment, that is, the property value falls to or below the amounts advanced to the borrower. In such a case the pre-determined share of depreciation could 25 be expressed as T - Vf, P - Vf or where the financier is only sharing in a portion, S, of depreciation beyond T or P, S (T - Vf). Again there are a number of means by which such embodiments can be represented. One such embodiment is where the depreciation sharing is one level prior to T being reached and another thereafter; 30 (6) In the event that the state-dependent financing arrangement is second or equal ranking to other finance advanced to the borrower, there exist situations above whereby the finance provider's participation in the depreciation exceeds that of the original principal. In order to protect for this the preferred contact states 43 5097A-AU-D9 that the state-dependent finance provider's depreciation exposure is limited the minimum of the depreciation share and P; and (7) The ability for the provider of the finance to not share in capital deprecation until the passage of a pre-determined period of time following the 5 commencement of the financing arrangement. In this case any of the above mentioned depreciation sharing amounts could be utilized subject to confirming that the required time had past. In the event insufficient time had past or a certain data was not reached prior to the date for determining depreciation share, then such share or amount would be either determined as, 10 orset to, zero. The amount owing on a wholly or partly state-dependent financing arrangement adjusted to reflect a pre-determined share of any capital depreciation on the collateral asset preferably includes, and for the purposes of explanation is mathematically 15 represented as follows (algebraic expressions have the meaning above): (1) An adjusted principal determined, at least in part, by Vi and Vf. This could be expressed as (Vi.LVR) + Z(Vf-Vi) or Vf.Z + Vi(LVR - Z). There are a number of other mathematical representations which could be used by those expert in the art which downwardly adjust the principal depending on depreciation sharing 20 mechanics; (2) An adjusted principal determined, at least in part, by the principal advanced or value trigger, T, and Vf. In this case the adjusted principal could be such that the finance provider does not participate in depreciation until such point as the collateral has depreciated below a pre-defined level. Adjusted principal could be 25 expressed as min(Vf, P), Vf if Vf is less than P or T, or the greater of zero and Vf - F where F represents the amount of outstanding prior or equal ranking finance; or (3) The adjusted principal determined as the initial principal advanced less any rights to the depreciation as described above. 30 For explanatory purposes, it is henceforth assumed that all EFMs carry a 1:2:1 cost of capital. Other features of the EFM contract may include, but are not limited to, one or more of the following: 44 5097A-AU-D9 (1) The borrower's obligation to discharge the EFM is triggered by any one of transfer or resumption of the property, the death of the owners, the n year anniversary of the loan, the exercise of novel prepayment provisions, or events of default; 5 (2) The EFM can be "prepaid" (i.e. without the property being sold) at any point during the contract's potential n year life (such circumstances trigger a binary switch or toggle in the EFM whereby its cost of capital reverts to a "1:2:0" ratio rule in which the creditor need not share in any capital losses on the underlying property). As will be discussed later, this binary switch in the EFM cost of 10 capital is an important mechanism for controlling for the negative effects of perverse "gaming" by consumers, and "adverse selection" more generally. Additional embodiments incorporate determinants other than a property sale as to whether the creditor will participate in a share of capital loss on, or depreciation in, the underlying collateral and incorporate other mechanisms for 15 determining the amount of such participation which may be by way of an adjusted principal, payment, credit or set off. Such other determinant associated with not participating in capital depreciation or capital loss include default under the financing contract, an early repayment which is earlier than pre-determined repayment events in the financing contract and the position of toggle markers or 20 switches which are determined based on pre-determined events including pre payment and default. An example of additional embodiments is provided in Annexure 3, which contains a sample of the full EFM contract of the preferred embodiment; (3) The consumer legally owns 100% of the equity in their collateral asset and 25 retains similar rights and liberties to those that they possess under a standard prior art mortgage product; (4) The EFM is secured by a mortgage over the collateral asset, or a second mortgage where the borrower has taken out a standard interest-bearing mortgage, which can be uniquely packaged together with a "subordinated" 30 EFM; and (5) An improvements provision that enables the borrower to receive credit on the date of discharge of the EFM (or any other date during the financing arrangement) for any increase in the collateral asset's value that arises as a result 45 )U97A-AU-V9 of capital improvements undertaken by the borrower during the term of the contract. As with the prepayment provision, embodiments of this improvements procedure will be described more fully below; (6) An expense provision that enables the borrower to receive credit or benefit for a 5 portion of transaction expenses such as stamp duty, legal fees and auction or selling commissions. This may be by way of taking into consideration such expenses when calculating the amount payable under the EFM contract; (7) A periodically or accruing interest rate or rent with reference to either the amount of funds advanced or the value of the property. Such interest rate or rent 10 may commence at any time during the contract. This feature could be utilized as a step-up in the cost of capital at a particular point in time in order to encourage repayment of the contract at that time; and (8) The specific terms and conditions of the EFM contract can be calibrated to generate investment returns that satisfy the requirements of external third-party 15 investors in a diversified pool of such contracts. A final key feature of the EFM contract is that the investment interests of the borrower (i.e. the future performance of the underlying collateral assets) are very closely aligned with those of the creditor and, where applicable, investors in 20 diversified pools of these contracts. Further details of the contract contemplated by the EFM are provided below. 1.1 Consumer Value Proposition In the housing market, demand for EFMs is expected from three primary consumer categories with varying value propositions: 25 (1) First-time buyers who (a) are not be able to afford to purchase a property, (b) want to reduce their upfront costs, or (c) want to buy a more expensive home; (2) Existing home owners who (a) want to refinance their current mortgage in order to reduce their ongoing mortgage repayments, or (b) want to upgrade to a more expensive home; and 30 (3) The asset-rich yet income-poor elderly who want to access an equity-release mechanism other than reverse mortgages. 46 5097A-AU-D9 Creditors impose a maximum loan-to-value ratio on the total financing that the borrower draws on (encompassing, for example, both a first interest-bearing mortgage that has been bundled together with a subordinated, or in other cases, an EFM that ranks equally with the interest-bearing mortgage) to ensure that the borrower has a 5 significant financial investment in the collateral asset at the time the finance is extended. EFMs should prove to be an attractive form of housing finance for consumers. Table 1 provides a comparison of financing a property with a traditional mortgage 10 ("Traditional Scenario 1"), and two alternative scenarios in which the consumer uses an EFM in combination with the standard form of interest-bearing finance ("Traditional + EFM Scenario 2" and "Traditional + EFM Scenario 3"). Table 1 Traditional Housing Finance Compared with the use of an EFM Traditional Scenario I Traditional + EFM Scenario 2 Traditional + EFM Scenario 3 >Traditional mortgage only >EFM to reduce costs >EFM to buy more valuable home Property Value $500,000 Property Value: $500,000 Property Value: $625,000 Prime Mortgage (90%) $450,000 EFM (20%): $100,000 EFM (20%): $125,000 Deposit: $50,000 Need to fund: $400,000 Need to fund: $500,000 LMI (about 1.5%): $6,750 Prime Mortgage (72%): $360,000 Prime Mortgage (72%): $450,000 Annual P&I (7%): $3,000/mth Deposit: $40,000 Deposit: $50,000 LMI (0%) $0 LMI (0%) $0 Annual P&I (7%): $2,400/mth Annual P&I (7%): $3,000/mth >Standard Cost >Save 20% plus >Buy 25% more valuable home 15 In EFM Scenario 2, the consumer uses an EFM to reduce the size of their prime mortgage from $450,000 to $360,000. In this scenario, the consumer should benefit in a number of ways: (1) The size of the required deposit on the prime mortgage falls by 20% (from 20 $50,000 to $40,000); 47 5097A-AU-D9 (2) The size of the ongoing interest and principal repayments over the n year life of their traditional mortgage falls by 20% (from $3,000 per month to $2,400 per month) as a result of the reduction in the size of the prime mortgage; and (3) The need for lenders mortgage insurance ("LMI") is eliminated altogether 5 (dropping from $6,750 to $0) as the value of the prime mortgage falls to 72% of the value of the property, below the level at which LMI is otherwise required (i.e. 80%). In EFM Scenario 3, the consumer uses an EFM to purchase a more valuable home. In 10 this example, the household is able to purchase a home that is 25% more valuable than the home in Traditional Scenario I for the same upfront and ongoing monthly cash costs. 1.2 EFM Payoffs 15 The following examples show the simplified payoffs associated with a $100,000 EFM that has been used to finance a $500,000 property with varying prices realised at the point of sale. Table 2 highlights the gross cash flow to the creditor. Table 2 Examples showing EFM Payoffs Example 1 Example 2 Example 3 Purchase Price $500,000 $500,000 $500,000 EFM $100,000 $100,000 $100,000 Sale Price $500,000 $450,000 $550,000 Borrower Repayment e Repays $100,000 e Repays $90,000 * Repays $120,000 ($100,000 $100,000 principal ($100,000 principal principal) less 20% of plus 40% of $50,000) $50,000) Comments * Borrower saves e Borrower reduces e Borrower makes a 20% on interest & loss on property by profit of $30,000 on principal 20% the property repayments e Saves 20% on e Saves 20% on interest & principal interest & principal repayments repayments Gross cash-flow to the $200,000 $90,000 $120,000 48 5097A-AU-D9 creditor 1.3 Key EFM Terms and Conditions In the housing market context, the majority of an EFM contract's terms and conditions can be based on a standard mortgage contract. For the EFM the total 5 amount owing under the loan is due only on the date that the mortgagor discharges the loan (e.g., by selling the property or by repaying without sale). The total amount owing is determined by either a competitive transaction value (e.g., auction or private sale treaty) or via an independent fair market valuation undertaken by a valuer (for example, a valuer approved by the creditor). In one embodiment of the EFM, the 10 creditor has the right to accept the transaction value or to require an independent market valuation, and relies on the independent valuer's appraisal estimate if there is a discrepancy. If the borrower does not accept the appraised value, it can require a further independent market valuation in which case the value of the property will be taken to be (at the creditor's option) either the mid-point of the two valuations, or the 15 transaction price. The creditor can also have the option to seek further valuations. If it does so, the value of the property can be the mid-point of the closest two of all the valuations. Other variations will be apparent to those skilled in the art. Other important features of the preferred EFM contract include: 20 (1) The improvements provision; (2) The refinancing provision; (3) The prepayment provision; (4) The "as is" or good repair provision; and (5) The sale and prepayment notice provision. 25 1.3.1 The Renovation Provision The EFM contract preferably incorporates an improvements provision to enable borrowers to be credited for complying renovations to the collateral asset that lead to an improvement in the value of the asset and that are made with the creditor's 30 consent. The borrower can seek credit for improvements to the property subject to conditions which include: 49 5097A-AU-D9 (1) There is a minimum certified expenditure on the improvement determined from time to time at the creditor's discretion (this can be a fixed sum, for example, $20,000, and be subject to price indexation from time to time); (2) An approved independent valuer undertakes a fair market valuation of the 5 property both as at the date the renovation commences and as at the date it is completed; (3) The renovation is completed within a certain number of months (or longer if the creditor approves) of the date it is started; (4) The second valuation determines the incremental value attributable to the 10 renovation. The incremental value is calculated as the difference between the property's valuations pre and post the improvement; (5) The incremental value attributable to the renovation is credited to the borrower at time of the discharge of the total amount owing under the EFM; and (6) At the time of discharge of the total amount owing under the EFM, credit for the 15 renovation will only reduce the amount owing to the extent that the property's value at sale (including the value of any credited improvements) is greater than its value at the time the EFM loan amount was originally advanced (i.e. the renovation provision cannot be used to produce a situation where the lender is sharing losses under the "1:2:1" rule, or similar). 20 Another embodiment of the renovation provision allows the borrower to seek credit (by way of set off, payment or otherwise), and the provider or servicer of the finance to determine the availability or quantum of such credit, for improvements or renovations to the collateral asset that lead to an improvement in the value of the 25 asset. This arrangement is subject to one or more conditions which may include, but are not to be limited to the following. (1) A specified or minimum expenditure on the improvement or a specific improvement type requirement determined from time to time at the creditor's 30 discretion (this can be a fixed sum, for example, $20,000, and be subject to price indexation from time to time or can be substantive improvements which exclude, for example, painting, landscaping or replacement of fixtures and fittings). Such specific requirements are preferably implemented by way of 50 5097A-AU-D9 inputting the presence or quantum of expenditure or improvement type into data processing apparatus and instructing it to output a signal/(s) representing the availability or otherwise of a credit, credit being set to zero, preventing the calculation of a credit, or reducing the credit (or parameters in its calculation) by 5 the amount of excluded improvements. (2) A valuation or estimate of valuation of the property is undertaken either as at or within proximity of commencement of the contract, commencement of the renovation, completion of the renovation, completion of the contract, or any other date which may be deemed appropriate at the creditor's discretion. Such a 10 valuation or value estimate is preferably undertaken by way of property valuation techniques including, but not limited to, physical appraisal, computer automated appraisal, an actual sales price, and a property-index based price. The resultant data is input into a data processing apparatus and utilised to output a signal representing the availability of, or the calculation of the quantum of, an 15 improvement credit. (3) The renovation meeting requirements such as being completed within a certain time period (or longer if the creditor approves) of the date it is started or the date of a pre-renovation valuation or valuation estimate or being undertaken by an approved builder. Other requirements taken into account may include whether 20 there exists an improvement notification or approval, or there exists a building or regulatory approval (if required), or the improvement was undertaken by a qualified trades person. Preferably such requirements are taken into account by way of inputting the satisfaction of a corresponding requirement into data processing apparatus and instructing it to output a signal/(s) representing three 25 possible outcomes - namely the availability or otherwise of a credit, the credit being set to zero, or the preventing or disablement of the calculation of a credit. (4) The value attributed to, or associated with, the renovation for purposes of a number, or a predefined proportion of such number, calculating the credit, payment or set off is determined by any one of a number of predetermined 30 methods which may include the following. i. The difference between the property's deemed value pre and post the improvement. 51 5097A-AU-D9 ii.The difference between the property's deemed value pre and post the improvement where such pre or post value is adjusted to take into consideration the movement in the property's value excluding the improvement over the time the improvement is made. This movement is not 5 associated with the improvement and the adjustment is preferably done by adjusting the deemed pre or post improvement values such that both values are deemed to be based at the same point in time thus isolating the value of the improvement as opposed to value changes over time in the collateral excluding the improvement. This is preferably done by multiplying a deemed pre 10 improvement value, VI, (or dividing a deemed post improvement value, V 2 ) by any one of the following factors: (a) a predetermined index as at the date of deemed improvement completion, 12, divided by the index at a deemed date of improvement commencement, Ii, in which case the improvement credit could be 15 mathematically presented as V 2 - V 1 (1 2 /1 1 ) (or V 2 (0 1 /1 2 ) - V1); (b) an appreciation factor, F, over the deemed period of the improvement, in which case the improvement credit could be mathematically presented as V 2 - ViF (or V 2 /F - Vi) or (c) a growth inflator calculated with reference to an appreciation rate, Ra, 20 and the time period between the deemed pre and post valuations, t, in which case the improvement credit could be mathematically presented as V 2 - V10+ Ra) t (or V2/(l+ Ra)-V 1 ). This provision is one embodiment of a method to allow the provider of the finance to 25 continue to receiving collateral-dependent returns during the period over which the improvement is made and reduce the return sensitivity to the period over which the improvement is made. Consider a situation where an improvement actually adds no incremental value, but, the property gains significant value over say a 6 month period between the deemed pre and post improvement period, purely as a result of the entire 30 property market appreciating strongly. If the improvement credit were to be determined in accordance with (i) above, this would result in a non-intentional zero appreciation sharing by the financier over the 6 month period. Further, without this provision, or other embodiments of it, during periods of collateral appreciation, the 52 5097A-AU-D9 borrower has an economic incentive to maximize the time period over which the improvement is made or the period between the deemed pre and post improvement valuation dates. ii. The cost or value of the improvement itself (preferably evidenced by one 5 or more invoices, quotations or other like documentation); iii. The minimum of the cost or value of the improvement; iv. The appreciated (or depreciated) value of the improvement over time with such appreciated value preferably determined by way of multiplying the deemed value of the improvement, Vi, as at a particular date by any one of 10 the following factors: (a) the value of the property at or near the conclusion of the contract, Vpe, divided by the value of the property as at the date the improvement value was initially determined or based, Vpi, in which case the improvement credit could be mathematically presented as Vi(Vpc/pi); 15 (b) the value of an index at or near the conclusion of the contract, Ic, divided by the index as at the date the improvement value was initially determined or based, Ii, in which case the improvement credit could be mathematically presented as Vi(Ic/ Ii); or (c) an appreciation factor, F, or growth inflator with reference to a rate of 20 appreciation, Ra, and a time period between the date the improvement value was initially determined or based and the date at or near conclusion of the contract, t, in which case the improvement credit could be mathematically presented as Vi(1+ Ra)' or V F. 25 This provision is one embodiment of a method to credit the borrower for improvements or renovations to the collateral asset that lead to an improvement in the value of the asset where such value is measured at the conclusion of the contract, or other predetermined date, as opposed to simply at completion of the improvement or another date prior to conclusion of the contract. The preferred method assumes the 30 value of the improvement is initially measured at or near completion of the improvement and its value then appreciates (or depreciates) at either the same rate as the property as a whole, a predetermined index, or growth inflator. Another embodiment is one where each of the deemed pre and post improvement valuations 53 5097A-AU-D9 are separately indexed to or near the completion date with the then difference representing the value attributed to the improvement credit. v. The depreciated value of the improvement over time. Such a depreciated value is preferably determined by either multiplying the initially 5 determined improvement value (or improvement value calculated at any point in time accordance with any of the methods described herein), Vi, by a depreciation factor, Fd, or dividing it by a deflator with reference to a rate of depreciation, Rd, and a time period between the date the improvement value was initially determined and the date at or near conclusion of the 10 contract, t, in which case the improvement credit could be mathematically presented as Vi Fd or Vi /(1 + Rd). This provision is one embodiment of a method which adjusts the value attributed to an improvement at a particular point in time for any subsequent depreciation. Such depreciation may be due to thing such as 15 wear and tear, atrophy, or changes in tastes or fashion over time. vi. The value assigned to the improvement at a point in time indexed to, or from, an alternate time with reference to the collateral asset or a property, inflation or other index. This is preferably done by way of multiplying the value initially attributed to the improvement by the value of the collateral 20 or an index as of the date at, or to, near conclusion of the contract divided by the value of the collateral or an index as of the relevant date (ie. the date being indexed to or from). (5) The value attributable to the renovation is credited, paid or set off to the benefit of the borrower/financee at time of the discharge of the total amount owing 25 under the EFM or at any other predetermined time. (6) In the event that a planed improvement has a negative value attributed to it, the finance provider may impose a negative credit or penalty. (7) At the time of discharge of the total amount owing under the EFM or at any other predetermined time, the credit, payment or set off for the renovation will 30 only reduce the amount owing to the extent that the property's value at sale or at any other EFM repayment or termination date (including the value of any credited improvements) is greater than its value at the time the EFM contract amount was originally advanced. That is, the renovation provision cannot be 54 5097A-AU-D9 used to produce a situation where the lender is sharing losses under the "1:2:1" rule, or similar. (8) The value attributed to the renovation cannot reduce the amount owing under the EFM below the original EFM amount. That is, if the value attributed to the 5 renovation exceeds the actual or assessed capital appreciation of the property, then the credit, payment or off set will only be equal to the amount of the capital appreciation. If there has not been any increase in the value of the property or if the value of the property has decreased when the EFM is repaid, the value attributed to the renovation will not be used to reduce the amount owing under 10 the EFM. Preferably this is implemented by way of calculating an overall difference equal to the value used for purposes of concluding the financial arrangement less the value used for commencing the financial arrangement less the value attributed to the improvement and returning one of the following outcomes: 15 (a) a credit of zero if the overall difference is negative, (b) a credit of the full value attributed to the improvement if the overall difference is positive, (c) a quantum equal to the deemed concluding value less the deemed commencement value if the overall difference is negative and the result of the 20 deemed concluding value less commencement value is positive, or (d) a quantum equal to the improvement plus the overall difference if the overall difference is negative and the result of the concluding value less the commencing value is positive. 25 1.3.2. The Refinancing Provision The borrower can refinance any senior or "pari-passu" mortgage that ranks ahead of, or equal with, the EFM subject to conditions which include: (1) One of the creditor's approved independent valuers is required to undertake a fair market valuation of the property; 30 (2) The refinancing must be with one of the relevant creditor's approved panel of senior lenders; and (3) The total refinancing must not exceed the greater of the total senior interest bearing debt outstanding at refinancing or, alternatively, a percentage (for 55 5097A-AU-D9 example, 85%) of the refinancing valuation less any amount owing on the EFM calculated at the time of refinancing assuming that the property was sold for that percentage of the refinancing valuation, whichever is the greater. 5 1.3.3. The Prepayment Provision The borrower is able to prepay all, but not part, of the amount owing under the EFM while it is still owning and occupying the property subject to conditions which include: (1) One of the creditor's approved independent valuers is required to undertake a 10 fair market valuation of the property as at the date of prepayment; (2) The borrower may have to repay the entire amount owing under the EFM. It may not therefore be able to partially prepay the amount owing under the EFM, although this could be allowable under the contract; and, most importantly (3) The creditor will not share in any capital losses in the event that the approved 15 independent valuer determines that the value of the borrower's property at the time of discharge is less than its value on the date that the EFM loan amount was originally advanced. The binary switch in the EFM contract's cost of capital from a 1:2:1 relation to a 1:2:0 20 relation in the event that the collateral asset has experienced capital depreciation as at the date of prepayment by the borrower is important to the successful operationalisation of the product. In particular, it protects the creditor against circumstances in which the borrower tries to prepay the EFM to the explicit economic detriment of the creditor (i.e. situations where the value of the collateral asset has 25 fallen and hence the EFM cost of capital is negative). In the absence of this binary switch, it is possible that EFM borrowers would systematically time their discharge dates to coincide with down turns in the housing market and thus periods of negative collateral asset performance. This would give rise to suboptimal creditor returns. 30 In another embodiment the borrower is able to either repay all or part of the amount owing under the state-dependent financing arrangement subject to conditions which include: 56 5097A-AU-D9 (1) The provider of the finance will not share in capital losses conditional on events including any one of the following: (a) a switch or toggle marker is set to a value or position indicative of an adjusted principal, payment, credit or set off being determined in the event of 5 election of early pre-payment or default by the financee or mortgagor; (b) a repayment date is earlier than pre-determined repayment dates in the financing contract; (c) a repayment is to occur independent of a sale of the collateral, other than at completion of the term of said finance; 10 (d) a repayment is to occur as a result of default under the financing contract; or (e) a repayment (which is not a prepayment) prior to a specified date or passage of time for which depreciation sharing will occur. (2) The amount owing under the financing arrangement in the circumstances where 15 one or more conditions under which the provider of finance will not share in capital losses prevails is determined in accordance with one or more methods which include: (a) If the final value of the collateral for purposes of concluding, or forming part of the basis for concluding the financing arrangement (final 20 value) is less than the initial value of the collateral for purposes of commencing the financing arrangement (initial value), the depreciation share percentage, Z, is set at zero and the value of the adjusted principal is calculated by subtracting from the principal the reset Z percentage multiplied by the result of the difference between the final value and the initial value (see 25 above for mechanics if final value greater than initial value); (b) Calculating the repayment amount dependent on the maximum of the initial value and final value; (c) Calculating the repayment amount dependent on determining whether the final value is less than the initial value and if so determining the repayment 30 amount based on the initial value; (d) Calculating the repayment amount dependent on determining whether the final value is less than the initial value and if so determining the repayment as the principal; or 57 5097A-AU-D9 (e) Calculating the repayment amount dependent on setting any previously calculated depreciation sharing amount to zero or any downward adjusted principal amount to the initial principal. 5 1.3.4. The As Is or Good Repair Provision The borrower's obligations in relation to the mortgaged collateral may be subject to one or more of the following conditions: (1) The mortgaged property must be maintained in good repair or no worse condition than the property was in when the financial arrangement was entered 10 into; (2) To the extent that an improvement has been undertaken, the mortgaged property must be maintained in no worse condition than the property was in when the property was inspected and valued at completion of the improvement for the purposes of determining a improvement credit under the improvement 15 provision; (3) In the event the creditor determines that the property has not been maintained in a state equal to that when the financial arrangement was entered into, the creditor may at its absolute discretion add to the value of the property determined by a sale or valuation for the purposes of concluding the financial 20 arrangement an amount which when added to such value equates to the value the creditor reasonably believes the property would have achieved if the property had been maintained in a condition no worse than when the financial arrangement was entered into. The value reflecting that which would have been achieved if the property had been maintained in a condition no worse than when 25 the financial arrangement was entered into will be the value used by the creditor for the purposes of calculating the appreciation or depreciation sharing and for concluding the financial arrangement; (4) In the event the creditor determines that the property is not in good repair, the creditor may at its absolute discretion add to the value of the property 30 determined by a sale or valuation for the purposes of concluding the financial arrangement an amount which when added to such value equates to the value the creditor reasonably believes the property would have had achieved if the property had been maintained in good repair. The value reflecting that which 58 5U97A-AU-V9 would have been achieved if the property had been maintained in good repair will be the value used by the creditor for the purposes of calculating the appreciation or depreciation sharing and for concluding the financial arrangement; or 5 (5) In the event the creditor determines that the property has either not been maintained in a state equal to that when the financial arrangement was entered into or in good repair, the creditor may at its absolute discretion determine the value reflecting that which would have had been achieved if the property had been maintained in a condition no worse than when the financial arrangement 10 was entered into will be the value used by the creditor for the purposes of calculating the appreciation or depreciation sharing and for concluding the financial arrangement; (6) The creditor may, at the expense of the borrower, undertake maintenance required to ensure the property is in good repair or maintained in its "as is" 15 condition prior to sale or valuation. The "as is" or "good repair" provision is important to the successful operationalisation of the product and the protection of the creditor against borrower gaming. This is particularly so to the extent the EFM is repaid while the borrower remains living in 20 the property as opposed to settling the EFM as part of a sale of the property. Given that the borrower shares in capital appreciation, in the event the property is sold the borrower has an incentive to maximize the value of the property, however, if the EFM is repaid while the borrower is still living the property, the borrower has an incentive to minimize the value of the property as this reduces the amount owing under the 25 EFM contract. Most property agents advising a home owner on how to maximize the value of their property will highlight the importance of how the property is presented and how in many cases the cost of presentation is significantly less than the value increase associated with the good presentation. Examples of maintenance items which can be easily rectified a low cost, but, may negatively impact the mindset of a valuer 30 or purchaser of a property and thus negatively impact value, are whether gardens are manicured, internal order and state of cleanliness, condition of paint on painted surfaces and state of repair of fixtures and fittings. In the event the property underlying the EFM has been poorly maintained or deliberately poorly presented, it is therefore important that the provider of EFM finance has the ability at its discretion to 59 5097A-AU-D9 add to the determined value or sales value of the property an amount based on its reasonable opinion that would reflect the value had the property been maintained "as is" or in good repair. 5 1.3.5. The Sale and Prepayment Notice Provision The EFM contract preferably incorporates provisions to enable the provider of the EFM (eg, a lender) to manage or observe the valuation or sales process of the collateral prior to repayment of the EFM. The borrower or finance recipients obligations in relation to the mortgaged collateral may be subject to one or more 10 conditions which preferably include: (1) To prepay, the borrower must give the lender at least I months notice of their intention to prepay and the date on which they intend to prepay; (2) The borrower must consult with the lender before they sell (that is, enter into a binding sale contract as opposed simply settle a sale) the property. This allows 15 the lender to discuss with the borrower various procedures, rights, and obligations under this mortgage, including how the property's appraised value is calculated. In selling, the borrower must take reasonable steps to achieve the fair market value for the property at the time of the sale; (3) The borrower's notification to, or consultation with, the mortgagee before they 20 sell must allow sufficient time for an inspection of the property, the ordering and conducting of a valuation and a review of the planned sale process; and (4) Following notice or consultation to sell the property or otherwise repay the EFM, in the event the mortgagee determines that the property has not been maintained in good repair (or has not been maintained in a state equal to that 25 when the financial arrangement was entered into) the mortgagee has the right, at the borrower's cost, to order works to rectify such state prior to the property being offered for sale (and in doing so not unreasonably defer the date when such property can be offered for sale) or valued; (5) Failure by the borrower to provide notification of intention to sell the property 30 or otherwise repay the EFM (which may be within a stipulated time of such intention) will constitute default under the financial arrangement and result in associated penalties (if any); and 60 5097A-AU-D9 (6) In the event the property has been maintained in good repair or in a state equal to that when the financial arrangement was entered into, the mortgagee may exercise a right to order minor or highly cosmetic works for purposes of sale or valuation presentation. 5 The "sale and prepayment notice" provision is an important feature distinguishing the EFM from traditional mortgages. Given the EFM finance provider's return is critically linked to the valuation or sale price of the property at the time of conclusion of the finance arrangement, mechanisms are required to allow the creditor to protect 10 or manage its interests in the valuation or sale of the property while at the same time ensuring borrower communication to allow the borrower to best manage their interests in the property and rights and obligations under the finance contract. An added benefit of the notification process is ensuring that the borrower relationship is well managed so as to mitigate borrower complaints. 15 In the case of a traditional mortgage, there is no mortgagee requirement that the borrower notify or consult with the mortgagee prior to undertaking the process of selling the mortgaged property or prepaying the mortgage. If a borrower needs the mortgage released over the property as part of a sale settlement, the traditional process 20 is simply one of the borrower requesting or applying for the mortgagee to discharge the mortgage over the title to allow the title to change hands or to become unencumbered. To the extent a traditional mortgagee requires a passage of time as part of the mortgage discharge process (as opposed to the property sale process) this is purely to provide it time to process the discharge request, calculate the discharge 25 payment, arrange a time to attend settlement of a sale, or in some cases allow client retention teams to contact the borrower for future business. While formal notice of a borrower's intent to sell a mortgaged property is not required by the mortgagee, many mortgagees do become aware of the sale process as the details of the mortgage are often requested of the mortgagee for inclusion in a contract of sale. 30 61 5097A-AU-D9 The importance of the "sale and prepayment notice" provision is highlighted by the following: (1) While the EFM finance provider has the right to rely on a valuation of the property as opposed to the property sale price for purposes of determining the 5 amount to be repaid under the EFM contract, valuers are usually averse to assigning a value to a property which differs from that contained in a recent contract of sale. In fact, in most cases, to the extent that property appears to have been on the market for what the valuer considers a reasonable period of time, the valuer will simply accept the contract of sale as the correct value of the property. 10 If the valuer has not inspected the property prior to the contract of sale being entered into, the valuer has no ability to understand or question the sale process or the presentation of the property which resulted in a given sale price. It is therefore clear that in order to obtain an unbiased, objective and independent view on value, the valuation needs to be conducted immediately prior to sale, 15 not after; (2) While the "as is or good repair" provision acts to protect the EFM provider's interests, its implementation after a sale or valuation may raise concerns by the borrower as to the accuracy or subjectiveness of the valuation impact. Through the notification provision the EFM provider has the ability to inspect the 20 property and if unsatisfied with the state of the property, either provide the borrower an opportunity to correct the state of the property or enforce the correction prior to valuation or sale. Therefore, through the combined operation of the notification and "as is or good repair" provisions the uncertainty associated with the valuation impact of the "as is or good repair" provision in 25 isolation is effectively removed; (3) Given that many users of an EFM may not have sold a property in the past, or in any case will not be expert in the ideal sales approach to maximize the sale value of the property, the consultation requirements as part of the notification provision allows the EFM provider to outline the key considerations the 30 borrower should have regard for when selling. The independent valuation of the property prior to sale should also provide valuable expectation setting guidance; and 62 5097A-AU-D9 (4) By knowing the property is on the market, the EFM provider has an ability to track the sales process online or through advertising media. This assists in monitoring fraud or non-arms length sales. 5 More specific details on the mechanics of all of the above provisions are provided in Annexure 3, which contains a sample of the full EFM contract of the preferred embodiment. 1.4 Priority Agreements 10 Wherever there is a mortgage that ranks ahead of the EFM, one feature of the arrangements disclosed herein is an agreement between the EFM creditor and any other independent creditors that have supplied finance to the borrower in conjunction with the EFM, which agreement regulates the respective rights of the two parties. So far as practicable, the EFM creditor will always seek to secure an agreement that will 15 protect its rights, including by placing a cap on the priority of any senior creditor (i.e. a supplier of senior ranking interest-bearing mortgage that has been bundled together with the EFM). 2. The Target Investment System ("TIS" 100) 20 The Overall System's 600 modular chain of integrated technologies begins with the TIS 100. In its most fundamental embodiment, the TIS 100 is a system that uses sophisticated investment algorithms to manipulate core data that it extracts electronically from the IID 102 (where that data was originally inputted into the IID 102 on the basis of information supplied by the IIPs 101) to continuously generate the 25 "idealised" or target investment pool characteristics that it electronically outputs to the TID 112. This electronic output will typically comprise a matrix of economic preferences in a spreadsheet-like format that describe the target portfolio's attributes to a very high degree of quantitative resolution. For example, the TIS' 100 output can quantify the precise target portfolio weights to the state-dependent financing contracts 30 (i.e. EFMs) right down to very small geographic units such as municipalities, while at the same time stipulating the maximum and minimum acceptable EFM investment thresholds subject to, say, both the geographic unit and dwelling type, amongst other things. After receiving a transmission from the TIS 100, the TID 112 stores this data 63 5097A-AU-D9 in its memory bank, which can then be electronically extracted by the AOS 200 in real-time for the purposes of processing its own decision-rules. The raw economic and financial data that is continuously inputted into the LID 102 5 (e.g. quoted listed and unlisted pool valuations or median property prices for post codes around Australia) is collected either manually via physical meetings with IIP's 101, or gathered electronically through an integrated Internet- or other computer based network linking the Overall System 600 with the IIPs (e.g. a Bloomberg terminal or real-time feeds from property information providers). Amongst other 10 constituents, the IIPs can include: (i) potential investors in the EFM pools; (ii) the SM; (iii) UCPs 211; (iv) investors in existing EFM pools; and (v) direct data dissemination suppliers. (i) (i) Potential Investors 15 The nature of the information entered by potential investors into the LID 102 can require that they make preliminary choices as to the portfolio characteristics that they would prefer. For example, the LID 102 enables them to select: (1) "passive" EFM portfolio exposures that supply well-diversified holdings of real estate assets that mirror the performance of the wider property market; or (2) more "active" EFM 20 portfolio exposures that will result in the TIS 100 generating aggressive investment targets that yield higher raw returns, albeit with commensurately higher risk. Prospective investors can also state their preferred dollar value commitment to any given EFM pool, which can have implications for the volume of assets the AOS 200 chooses to accept or reject. In this context, the IID 102 has the ability to store both 25 indicative (i.e. non-binding) and legally binding orders in relation to the prospective investors' monetary exposure to any given EFM pool. The provision of passive investment services is a traditionally less expensive undertaking than the cost associated with supplying more sophisticated active 30 investment strategies, and the investors' selection in this regard will have an impact on the indicative fees quoted to them via the IID at the completion of preference inputting process. It should be emphasised that the TIS 100 has the ability to generate target EFM portfolios that are tailored specifically to individual investors such as 64 5097A-AU-D9 pension plans (where these investors are able to commit sufficiently large amounts of capital to warrant such tailoring), or to simply aggregate the inputted investor preferences that have been stored in the IID 102 and compute the best possible portfolio outcome that satisfies the largest number of potential investors. The former 5 tailored alternative is often referred to in the investment industry as a "specialised mandate" in which portfolio managers will invest their larger clients' capital on an individual, non-pooled basis such that the strategy they deploy perfectly matches with the client's bespoke requirements. 10 To illustrate the potential specificity of the EFM pool management options outlined above, the TIS 100 can offer a range of "passive" portfolio construction methodologies to investors via the IID 102: (a) EFM investment pools that are either value- or volume-weighted by the geographic location of the underlying residential properties (e.g. state-by-state, 15 city-by-city, or post-code-by-post-code, depending on the granularity of the geographic delineations that the TIS 100 wishes to make). In this manner, the target portfolio generated by the TIS 100 has EFM weights that reflect the value- or volume-weighted distribution (where volume can be defined by either the absolute number of properties or the transactional liquidity of those 20 properties) of residential real estate across Australia according to the relevant geographic identifiers. For example, if, say, 40% of all residential properties were located on a value basis (i.e. the total number of dwellings multiplied by the current price of those dwellings) in Sydney, then the TIS 100 produces a target EFM weight for Sydney of 40%, subject to upper and lower bound 25 tolerance thresholds. These tolerance thresholds are in turn paramaterised via randomised statistical simulations (e.g. using a Monte Carlo method) undertaken by the TIS 100 to determine what variations from the target portfolio weights the EFM pool could accommodate before there was a material change in its performance; 30 (b) EFM investment pools that are value- or volume-weighted by both dwelling type and geography. For example, where investors want to ensure that they both have the right geographic exposures, and the right mix of properties. In this case, the TIS 100 quantifies the value-weighted distribution of all dwelling types 65 5097A-AU-D9 subject to their location, and hence provides two-dimensional target portfolio weights that specify both the required geographic and dwelling type capital allocations. (c) EFM investment pools that are value- or volume-weighted by dwelling type, 5 geographic location, and, for example, the contemporaneous consumer cohorts. This represents an even higher level of portfolio construction resolution, whereby the TIS 100 produces three-dimensional value- or volume-weighted portfolio construction targets based on the distribution of all dwelling types subject to their location, and the types of consumers that occupy those properties 10 (e.g. first time buyers, upgraders and retirees). The objective of the passive TIS 100 weighting systems identified above is simply to provide investors with a portfolio of EFMs that most closely approximates the characteristics of the broader residential real estate market and hence minimises the 15 so-called "tracking error", which is a metric used in the funds management industry to quantify the divergence of a passive portfolio from its chosen asset-class benchmark. Detailed information explaining each sub-option is supplied in person, over the telephone, or via the relevant EFM pool order page on the IID 102 computer-based interface. 20 The indicative portfolio management fees quoted by the TIS 100 through the IID 102 for the provision of such investment services are dependent on the choices made. Upon completion of each investor's initial "portfolio request", a message is sent via email to the investor providing a preliminary outline of the proposed portfolio 25 construction methodology and management fee structure. Potential investors who wish to acquire interests in active EFM pools are required to submit more detailed information to the IID 102. These participants can choose one or more of the following services, the implementation of which is carefully managed by 30 the TIS 100 and AOS 200 as detailed hereafter (the following list is not intended to be exhaustive): 66 5097A-AU-D9 (a) The investor 191 transmits to the TIS 100 through the IID 102 their geographic portfolio construction preferences (e.g. with higher and lower weights to certain capital cities); (b) The investor 191 transmits to the TIS 100 through the IID 102 their dwelling 5 type portfolio construction preferences (e.g. with higher and lower weights to types of properties, such as detached homes); (c) The investor 191 transmits through the 1ID 102 their portfolio construction preferences based on a variety of other distinguishing consumer- and property related characteristics including, but not limited to, the properties' size, the 10 properties' land-to-dwelling ratio, the properties' number of bedrooms, the properties' number of bathrooms, the occupier's age, income, credit history or cohort (e.g. first-time buyer, existing owner, or retiree); (d) The investor 191 transmits to the TIS 100 through the IID 102 their preference that the Overall System 600 seeks to minimise the EFM pool's portfolio risk 15 (i.e. expected future volatility) subject to the investors' pre-specified preferred level of return; (e) The investor 191 transmits to the TIS 100 through the IID 102 their preference that the Overall System 600 seeks to maximise the EFM pool's portfolio return subject to the investors' pre-specified preferred level of risk; 20 (f) The investor 191 transmits to the TIS 100 through the IID 102 information with respect to its existing portfolio allocations to, say, stocks, bonds, cash and other kinds of real estate (e.g. commercial or industrial), and requests that Overall System 600 optimises its total portfolio holdings on a so-called "mean-variance basis" by adding to their portfolio a mean-variance "efficient" exposure to 25 EFMs (whereby the investor's acceptable EFM pool allocation can be restricted by maximum upper or lower bounds determined by their own internal investment mandate, or, in other circumstances, their allocation is unrestricted), and subject to the investor's preferred total portfolio level of risk or return (i.e. across all their asset-class holdings) along the lines of the methodologies 30 discussed in points (d) and (e) above; or, (g) The investor 191 transmits to the TIS 100 through the IID 102 their preference that the Overall System 600 constructs the EFM portfolios in accordance with 67 5097A-AU-L)9 the TIS' 100 proprietary investment methodologies, the precise mechanics of which are confidential and will not be disclosed to the investor; (h) Any combination of one or more of the above. 5 The objective of the active TIS 100 portfolio construction systems outlined above is to engineer EFM exposures that most closely approximate the investors' communicated preferences. Detailed information explaining each sub-option is supplied in person, over the telephone, or via the relevant EFM pool order page on the IID 102 computer based interface. 10 The indicative portfolio management fees quoted by the TIS 100 through the llD 102 for the provision of such investment services are dependent on the choices made. Upon completion of each investor's initial "portfolio request", a message is sent via email to the investor providing a preliminary outline of the proposed portfolio 15 construction methodology and management fee structure. At this juncture of the process, prospective investors can also be furnished with the ability to indicate a variety of other preferences with respect to further portfolio enhancements and the ongoing management of their committed capital. These 20 additions, the provision of which is identical in method to those outlined above, include, but are not limited to, the following: (a) Whether the investor has either absolute or relative taxation preferences for income rather than capital gains, or vice versa (in most cases provided by simply stating the relevant effective rate of tax for each based on the investor's personal 25 circumstances); (b) Whether the investor, other than for taxation reasons, has a preference for returns in the form of yield (i.e. cash distributions from the EFM pool) or capital appreciation and the nature of any such preference; (c) Whether based on points (a) and (b) above, and other potential considerations, 30 the investor would like to have the income and capital cash-flow distributions yielded by the EFM pool "reinvested" in the same EFM pool or Overall System 600 managed investment vehicle, or, in the event that this is not the investor's preference, fully distributed to an account of the investor's choosing; and 68 5097A-AU-D9 (d) Whether or not the investor would prefer increasingly diversified exposures to EFMs through the regular introduction of new "tranches" of EFMs, thereby increasing the number of assets to which the investor has access via the pool over time. 5 It should be noted that potential investors 191 who input their preferences into the IID 102 in this manner will have a strong working knowledge of the meaning of the terms used above and the application of these terms to their investment holdings. 10 (ii) The System Manager ("SM") The SM has the ability to input information into the IID on a discretionary basis. There are a number of reasons why this should happen in relation to the functions of the Overall System 600 as a whole. For instance, corrective action may need to be taken in the event that the behaviour of the EFM pools is not consistent with the 15 preferences of investors as a consequence of some unintended circumstance that was not previously anticipated by the AMS 500, and hence not catered for by its decision rules. The electronic communications links between the AMS 500, the IID 102 and the TID 112 in Fig. 2 provide such feedback. 20 (iii) The Underwriting Capital Providers (UCPs 211) In the event that their services are required, the UCPs 211 supply short-term warehouse funds to enable the distribution of EFMs through the AOS 200 in advance of securitisation by the ASS 300 and ultimate repayment of the UCPs' 211 funds. These agents also have the ability to input their preferences into the IID 102. They 25 can, therefore, exert a strong influence over the TIS' 100 computed targets in order to prevent the origination of EFMs (through the AOS 200) that they are not prepared to hold prior to securitisation. UCPs 211 can also submit both "positive" and "negative" preferences to the lID 102. Positive preferences include the preferred characteristics (e.g. geographies, dwelling types, consumer cohorts) associated with any underlying 30 EFMs that they would be prepared to warehouse, while negative preferences signal to the TIS 100 EFM attributes that should not be originated through the AOS 200. Accordingly, negative preferences form an important component of the TID 112, imposing a list of characteristics that cannot flow to the AWD 210. 69 5097A-AU-D9 (iv) Current Investors Current investors are the penultimate category of IIP's 101 that input information into the IID 102. The Overall System 600 administers these transmissions on both a 5 discretionary and automated electronic basis via the AMS 500, which is discussed hereafter. In short, many of the outputs produced by the AMS 500 reflect the results of its automated decision-rule analysis (drawing on data supplied by the AMD 502 and the TID 112), which dynamically monitors differences between the preferences of existing investors and the actual performance of the EFM pools. On the basis of the 10 outcomes of the AMS' 500 decision-rule analysis, it electronically feeds-back new information to the lID 102 to assist in rectifying any unintended portfolio asymmetry found to exist at a given point in time. That is, the AMS 500 provides a feed-back control loop to the IID 102, and hence the TIS 100, the TID 112, and eventually the AOS 200, to influence the asset-selection rules controlled by the AOS 200 (also 15 discussed hereafter) such that the preferences of investors and the performance of the EFM pool are more closely aligned. (v) Direct Data Dissemination Suppliers The final class of IIP's 101 that input information into the IID 102 are the direct data 20 dissemination providers. These entities have electronic connections into the IID 102 that transmit regular batch or real-time informational updates on core data that is of importance to the TIS' 100 portfolio generation procedures. These entities include, but are not limited to, financial market information providers, such as Bloomberg or Reuters, government statistical agencies, credit bureaus and mortgage insurers, and 25 property market information suppliers. 1.1 Indicative TIS 100 Portfolio Generation Procedures As discussed above, the TIS 100 is responsible for electronically computing the target or idealised EFM portfolios that are outputted to the TID 112 and constitute an 30 important input into the AOS' 200 decision making process when it seeks to source EFM assets. The TIS 100 has the capability to generate multiple target portfolios on the basis of information it electronically extracts from the LID 102. These target portfolios relate to both new EFM pools that the need to be constructed to satisfy the 70 5097A-AU-D9 preferences of new classes of investors, in addition to target portfolios that the TIS 100 produces for existing EFM pools that are being managed by the AMS 500, and which will influence the characteristics of new tranches of EFMs that are being sourced by the AOS 200 in order to be introduced into those existing EFM pools. In 5 light of the above, the inputs into the TIS 100 and the outputs it produces will depend upon the nature of the target portfolio. After the TIS 100 electronically extracts the required data from the IID 102, it undertakes a number of key steps continuously through time in order to ensure that 10 the multiple target portfolios contained within the TID 112 are at all times up-to-date. A non limiting example of the architecture of these steps is set out below. Indicative Portfolio Construction Step 1: The TIS 100 aggregates all contemporaneous investment preferences stored in the IID 15 102. These will include inputted active and passive EFM portfolio requirements in addition to the so-called "specialist" investment mandates that reflect the portfolio preferences of specific investors. Indicative Target Portfolio Construction Step 2: 20 On the basis of the aggregations outlined in Step 1, the TIS 100 quantitatively computes the multiple EFM target portfolios (drawing on additional core economic, financial, demographic and other required data that it electronically extracts from the 1ID 102) applying the various portfolio optimisation methodologies outlined below such that the target portfolios maximise the "utility" or economic satisfaction of the 25 various classes of investors that have communicated their preferences to the IID 102. Indicative Target Portfolio Construction Step 3: Having computed the target portfolios' characteristics, the TIS 100 undertakes sophisticated statistical simulations of the impact of a wide range of contrived and 30 randomised deviations from these target estimates and determines the influence of such on the portfolios' expected performance. After completing these simulations, the TIS 100 determines the maximum and minimum acceptable portfolio tolerance thresholds to a series of AOS 200 controlled attributes (e.g. the pools' exposures to 71 5097A-AU-D9 different geographic regions, dwelling types, and consumer characteristics). An example of the computer programming code used to conduct such portfolio simulations is contained in Annexure 1. 5 Indicative Target Portfolio Construction Step 4: The TIS 100 electronically outputs to the TID 112 the specific characteristics of the target EFM pools and the acceptable tolerance thresholds in the form of very detailed matrices that quantify to a high degree of resolution the preferred attributes of the EFM pools. An example of TIS 100 target portfolio output is contained in Annexure 10 2. The TIS 100 can iterate through Steps I and 4 on a very rapid basis, and thereby provide intra-day updates to the TID 112, if required. 15 As discussed above, the TIS 100 utilises many sophisticated algorithms in order to compute the target EFM portfolio characteristics that most accurately approximate the preferences of investors. In the next section, a number of representative specific portfolio construction methodologies are disclosed. These are employed by the TIS 100 to compute the target portfolio outputs that it transmits to the TID 112 based on 20 inputs supplied by the IID 102 The TIS' 100 one-, two-, and three-dimensional value- and volume-weighted passive portfolio construction processes discussed previously typically rely on estimates of the "price" of the assets that comprise the portfolios. However, given that the 25 collateral assets underlying the EFM arrangements are usually very illiquid (i.e. they are individually bought and sold on an infrequent basis), a dependable proxy for their price at any point in time can be very difficult to obtain. When constructing passive portfolios the TIS 100 therefore harnesses a number of different proxies for the price of the individual assets in any given jurisdiction (referred to hereafter as a Statistical 30 Local Area or "SLA"). Amongst other metrics, these measures include: (i) The asset's last quarter median price; (ii) The asset's last four quarter average median price; and, (iii) The asset's last four quarter average volume-weighted median price. 72 5097A-AU-D9 Subject to the three price disclosed proxies above, the TIS 100 can construct passive value-weighted EFM portfolio estimates using the following formulae: Ws-, =V Median Price,.se, X Total Dwellings 2

.

1 ,s, Y (Median Price ,,s4 X Total Dwellings 2 0 1 .,,) 5 S 4~ SMedian Pie1s - X Total Dwellings 200!,sLA n I Median PriceX,s le t= [n eS X Total Dwellings 200,s /SA n Z Median Price X Sales,sg X Total Dwellings 200 5 Z Sales,sLA N Median Price rsLs. X Salestsg n~ Total Dwellings200,sA s1: Sales,., WSAnt=1 I where Median Price is the median price of SLA 1 , in time period t is either of the three 10 price proxies outlined earlier; Total Dwellings 2 00 can defined as the sum of free standing houses, semi-detached homes and terraces, units or flats, and houses or units attached to other buildings in the year 2001; and Sales is the number of dwellings sold in SLAL, in time period t. 15 The TIS 100 is capable of producing a number of different "active" portfolio construction processes. One alternative is for the TIS 100 to ignore the investors' other asset holdings (e.g. to stocks, bonds and cash) and to simply optimise the EFM pools' target weights based on the risk or return attributes of the underlying assets. This can involve a wide variety of EFM-weighting strategies based on the TIS' 100 20 expectations of the future performance of certain geographies, asset types, and consumer cohorts, amongst other things. Consequently, these methodologies are 73 5097A-AU-D9 likely to give rise to very different target portfolio outcomes in comparison to the passive techniques discussed previously. Another more nuanced portfolio construction option involves the investor transmitting 5 to the IID 102 information with respect to its existing asset exposures (e.g. to stocks, bonds, cash and (commercial and industrial) property), which the investor updates from time to time, and the TIS 100 subsequently optimises the investor's entire portfolio holding (i.e. including all asset-classes) with the addition of a pool of EFM assets, subject to the investor's preferences with respect to either risk or return. In this 10 manner, the TIS 100 can provide the investor with a "whole of wealth" asset-planning service, without necessarily managing the investor's direct allocations to the non EFM asset-classes. More specific illustrations of the TIS' 100 portfolio optimisation capabilities are 15 disclosed below. These procedures form but one part of the TIS' 100 suite of algorithms and, subject to the requirements of investors, can be used to drive the target outputs that are transmitted to the TID 112. It is important to note here that the TIS' 100 full range of portfolio generation procedures encompass even more complex methodologies involving quite advanced functionalities (e.g. neural networks) and the 20 material discussed herein should in no way limit the perceived scope of the TIS 100's activities. The nature of the actions that the TIS' 100 undertakes also needs to be contextualised against its preference aggregation and specialised mandate capacities (particularly in the case of the former, whereby the TIS 100 must first determine what portfolio construction technique is most likely to maximise the utility of the largest 25 number of pooled investors). (a) Stand-alone TIS 100 Portfolio Optimisation with respect to Return Under each stand-alone TIS 100 portfolio optimisation option the investor 191 is not required to transmit to the IID 102 any additional information regarding their existing 30 asset holdings. As such, the TIS 100 optimises the EFM portfolio as if it were the only asset held by the investor. 74 5097A-AU-D9 TIS 100 optimisations typically proceed by creating an objective mathematical function that is either maximised or minimised and then specify any constraints to which the objective function will be subject. These calculations are all performed by statistical applications embedded within the TIS 100. 5 To illustrate by way of example, assume the investor has communicated to the IID 102 an intention to secure a specialist investment mandate (i.e. one in which the target EFM pool produced by the TIS 100 is tailored specifically to the investor's preferences) comprising an $X capital commitment. Assume further that the investor 10 has also inputted a preference for an expected return on its investment Y% higher than, say, the performance that it could expect to realise on a passive portfolio of EFMs. After extracting this information from the IID 102 and undertaking its portfolio optimisation procedures, the TIS 100 is able to communicate to the investor via the IID 102 the EFM pool's target portfolio characteristics (i.e. comprising 15 specific weights to a range of asset-level attributes, such as various geographies and dwelling types) in addition to the portfolio's expected risk profile, assuming that the requested return is in fact achievable. Of course, this data is also transmitted to the TID 112 if the investor agrees to proceed with the transaction. The indicative portfolio construction techniques upon which this TIS 100 generated information is based are 20 set out in the formulae below. The objective function under option (a) is to minimise the EFM portfolio's risk subject to the investor's desired nominal portfolio return (e.g. 12% per annum), and any other constraints as illustrated below: 25 Minimise (a) Zw,wjr 1 by choosing w, (i = 1, ... , n) Subject to the following constraints: n (b) wr, = E(r) 30 (c) w, = 1 1=7 75 5097A-AU-D9 (d) (Optional) w, >0 where w, are the n percentage portfolio weights to each EFM or group of EFMs (e.g. the TIS 100 can optimise using state-level geographic units, which form the basis for 5 the portfolio's asset inputs); n is the number of EFMs or number of groups of similar EFMs; a, are the expected statistical correlations of returns between each EFM or group of EFMs; r, are the expected returns attributable to each EFM or group of EFMs; and E(r) is the expected portfolio level return. 10 The optimisation problem outlined above is solved by the TIS 100. In the event constraint (d) is not necessary, the TIS 100 processes the problem using Lagrangian mathematics to solve for the n unknown variables (i.e. the weight allocations to each individual EFM or group of EFMs). In the event constraint (d) is necessary, the TIS 100 solves the problem using quadratic programming techniques. These capabilities 15 are embedded within the TIS' 100 statistical applications. Equation (a) above is the TIS' 100 formula for the expected volatility of the EFM portfolio. The a,'s can be inputted into the equation by the TIS 100 automatically. Equation (b) states that the EFM portfolio's return must be set equal to the investor's 20 preferred target. Again the r,'s can be inputted automatically. Equation (c) simply states that the weights must add to 100% (that is, all capital must be allocated to EFMs in this stand-alone portfolio optimisation example). Inequality (d) is necessary in the event that there is an inability to take "short" positions in relation to EFMs, which is likely to be the case. A short position refers to the situation where an investor 25 sells an asset before owning it (usually by borrowing that asset under an agreement to pay it back later) and then buys that same asset back in the future. It is the direct opposite (in an economic sense) of buying an asset in the ordinary course since the investor profits under a short sale when the price of the asset falls (rather than rises). It is desirable to provide such a facility to investors as derivative markets based on 30 underlying EFM securities develop. In this preliminary case, inequality (d) is a necessary constraint on the optimisation process. 76 5097A-AU-D9 (b) Stand-alone Optimisation with respect to Risk The TIS' 100 task in option (b) is similar to that outlined above except that the objective function and constraints are altered slightly. The actual methodology the TIS' 100 uses to determine the target portfolio weights is however essentially the 5 same. In this option, the TIS' 100 objective function is to maximise the portfolio level return (i.e. not to minimise its risk as above) subject to a desired level of risk, and any other constraints as illustrated below: 10 Maximise (a) wir by choosing wi (i =1, n) i=1 Subject to the following constraints: (b) ww,, = E(-) i~j=I 15 (c) Zw, =1 (d) (Optional) w, > 0 where all the symbols have the same interpretation as above and E(-) represents the expected volatility of the portfolio defined in precisely the same fashion as it was in 20 the objective function in (a) immediately above. (3) Multi-Asset-Class Optimisation with respect to Return The TIS' 100 multi-asset-class optimisation procedures are conceptually similar to the stand-alone techniques outlined above except that the weights w; apply to all of the 25 investment classes in the investor's proposed portfolio, including EFMs, and, say, stocks, bonds, cash and other real estate assets (where applicable). In addition, there may be a further constraint whereby the investor (such as a pension plan) stipulates an upper bound on their portfolio allocation to EFMs, as set out below. 30 77 5097A-AU-D9 The TIS' 100 optimisation problem becomes: n Minimise (a) IWiwioC by choosing wi (i= 1, ... , n) i,j=1 Subject to the following constraints: 5 (b) wi = E(r) 1=1 (d) (Optional) w, 0 10 (e) (Optional) wEFM = where WEFM is the maximum weight attributable to the EFM pool as pre-specified by the investor; wi are the total portfolio weights attributable to the remaining asset classes (e.g. stocks, bonds and cash), and all other symbols are as previously defined. 15 (4) Multi-Asset-Class Optimisation with respect to Risk In this second multi-asset-class option, the TIS' 100 objective function is modified slightly such that it maximises the investor's total portfolio level return (i.e. it does not minimise its risk as above) subject to a desired level of risk, and any other 20 constraints as illustrated below: Maximise (a) wr, by choosing wi (i = 1, ..., n) Subject to the following constraints: (b) Ewwp = E(o) ij=1 25 (C) w, =I1 (d) (Optional) wi > 0 78 5097A-AU-D9 (e) (Optional) w,, = x% where all the symbols have the same interpretation as above. 5 3. The Asset Origination System ("AOS" 200) Harnessing its electronic connections with the TID 112, AOD 202 and AWD 210, the AOS 200 employs a range of static and dynamic feed-back and feed-forward decision-rules in order to select in real-time EFM applications submitted to it via its distribution agents (i.e. the MMIPs 201). The AOS' 200 ultimate objective is to 10 source EFM assets that most closely approximate the portfolio preferences stipulated by the TID 112 (and hence which satisfy the pre-specified portfolio desires of investors and, where applicable, UCPs 211, as inputted into the IID 102 and processed by the TIS 100). Fig. 4 exemplifies this process. The AOS 200 therefore compares in real-time the data that it extracts from the AOD 202 (in relation to the application 15 characteristics that the MMIPs 201 input) with the target portfolio attributes and tolerance thresholds provided by the TID 112, and subject to the features of the EFM assets that the AOS 200 has already approved (as stored and extracted from the AWD 210), determine whether the submitted applications progress through to settlement. Based on its static and dynamic decision-rules, the AOS 200 is also responsible for 20 managing the MMIPs' 201 remuneration systems, regulating the EFM contractual terms in order to source the appropriate assets and signalling to the MMIPs 201 changes in distribution and marketing needs by consumer cohort and geographic region. As a final task, the AOS 200 must interact with the AWD 201, and, once an EFM application has been approved, administer the transfer of capital from the UCPs 25 211 to the applicant that has successfully sought finance (via the MMIPs 201). The security that is provided by the applicant in exchange for the finance is the underlying EFM contract, which is, where applicable, held by the UCPs 211 for the duration of the warehouse period until such a time as the contracts are formally securitised (i.e. they packaged into pools owned by the end-user investors). Of course, in a one-stage 30 capital provision process the end-user investors can hold the assets from the very beginning of the origination cycle. 79 5097A-AU-D9 In addition to static asset evaluation rules, the AOS 200 also utilises dynamic "feed back" and "feed-forward" decision-rules (also known as "process control systems"), which rely on real-time electronic data transmissions from the AOD 202, the TID 112 and the AWD 210, in order to maximise the efficacy of its asset-selection activities. 5 The AOS' 200 real-time decisioning procedures involve the computation of so-called distribution "errors" (e.g. deviations in the EFM application or wider portfolio characteristics relative to that which was targeted by the TID 112 through the TIS 100), which are used for the purposes of determining what asset evaluation actions the AOS 200 should take (e.g. accept, reject, or request more application information). 10 The two general steps that the AOS 200 undertakes when administering its decisioning systems involves at minimum: Indicative Decisioning Step 1: (a) After extracting the MMIPs' 201 inputted data from the AOD 202, the AOS 200 15 measures the difference between the applicants' observed attributes (which, in the technical process control lexicon, are known as "signal" or "disturbance" variables) and the AOS' preferred EFM application characteristics based on its real-time assessment of differences between the TID's 112 targets and tolerance thresholds, and the actual (i.e. approved) application attributes stored in the 20 AWD 210 (where the output of this latter AOS 200 assessment can be referred to as the "set point" variables); and, (b) The AOS 200 then inputs the differentials estimated in (a) between "signal" and the "set point" variables into its decision rules and based on the outcomes of this process undertakes the required actions to either minimise errors observed prior 25 to the actual "settlement" or final approval of the application, which can be classified as a "feed-forward" procedure, or minimise errors drawn from post approval data, and thereby influence future asset-selection performance, which is a "feed-back" technique. 30 More specifically, the AOS' 200 "feed-forward" asset-selection processes include the use of any ex ante (i.e. pre application approval) target portfolio preferences that derive from the TID 112 to screen current EFM applications (albeit that the AOS' 200 simultaneous use of information from both the TID 112 and the AWD 210 80 5097A-AU-D9 encompasses elements of both "feed-forward" and "feed-back" process control); the dynamic modification of the EFM's contractual terms and conditions in real-time in response to application attributes inputted by the MMIPs 201 into the AOD 202 (e.g. an increase or decrease in the EFM's cost of capital based on the applicant's 5 attributes), which in turn impact on the likelihood of the applicant accepting or rejecting the AOS' 200 proposed terms and conditions; ex ante MMIP 201 remuneration strategies structured to maximise the probability of the AOS' 200 agents sourcing applications that most closely fit investors' portfolio requirements; and the calibration of the content, structure and cost of EFM marketing programmes in order 10 to influence future EFM application patterns (all of which are known as "manipulated" variables). By way of contrast, AOS 200 "feed-back" asset-selection processes include any ex post (i.e. post application approval) changes to the EFM's terms and conditions, 15 MMIP 201 remuneration systems, the content, structure and cost of EFM marketing programmes, and the AOS' real-time decisioning outcomes (which will be in part a consequence of ex post data collected from the AWD 210) that are attributable to the characteristics of approved EFM applications, where the latter must have deviated from preferences produced by the TID 112. In such events, the AOS' 200 process 20 control system computes the differences between the target and observed variables and undertakes the appropriate asset-selection actions. This involves accepting or rejecting an application in real-time, or electronically transmitting information directly back to the IID 102 in order to effect changes to the TIS' 100 outputs and hence the data stored in the TID 112. 25 All of the AOS 200 steps above are undertaken on either a batch or real-time basis by an integrated computer system that has been designed to manage advanced process control technology. 30 In summary, the AOS 200 uses its direct electronic links with the TIDi 12, AOD 202, and AWD 210 in combination with its static and dynamic feed-back and feed-forward decision-rules to minimise fluctuations between the target EFM portfolio 81 5097A-AU-D9 characteristics generated by the TIS 100 and the actual EFM applications that are approved. Practically speaking, this involves several subsidiary processes, including, (a) Extracting the MMIPs' 201 inputted application data and processing it against the AOS' 200 simple static rules, and then subsequently against more 5 sophisticated dynamic rules that involve comparisons with the target portfolio characteristics contained within the TID 112 and the attributes of previously approved applications held in the AWD 210; (b) Transmitting signals to the MMIPs 201 to adjust the content, structure and cost of their EFM marketing programmes to regulate EFM demand by geography 10 and consumer cohort; (c) Modifying the EFM contracts' terms and conditions on a batch basis and in real time such that approved applications most closely match the preferences of investors, as inputted into the lID 102; (d) Inputting information (oftentimes reflecting asset-selection errors) back into the 15 IID 102 so as to influence the outputs produced by the TIS 100 and hence the data stored in the TID 112; (e) Dynamically managing the MMIPs' 201 remuneration system such that they have strongest possible incentive to source EFMs applications that satisfy the expectations of the TID 112 while also continuously calibrating the MMIPs' 20 201 remuneration parameters though time in response to their observed performance; and, (f) Settling EFM transactions by transferring capital from the UCPs 211 in exchange for security (i.e. the mortgage contracts), which represent the legal embodiment of the end-user investors' claims over the underlying collateral 25 assets. The sampling of AOS 200 procedures outlined above will now be examined in more detail and henceforth known as AOS Processes 200/1-200/6. 30 2.1 AOS Process 200/1 The information stored in the AOD 202 supplies the AOS 200 with access to a very detailed suite of characteristic-based data covering the EFM applicant's profile (e.g. age, income, current address, credit history, proposed property's location, proposed 82 5097A-AU-D9 property type, etc), which has been electronically inputted into the AOD 2020 by the MMIPs 201. The AOS 200 electronically extracts the relevant packets of application data and in real-time begins by processing this data through a series of static decision rules. For example, the initial AOS 200 rules data encompass the following: 5 (a) The applicant's age; (b) The property-type (e.g. fully detached, semi-detached, or attached); (c) The tenure type (e.g. freehold vs leasehold); (d) The property's proposed address (this may involve one post-code, or the applicant selecting an SLA that encompasses multiple post-codes); 10 (e) The applicant's current income; (f) Whether the EFM will be a senior, stand-alone mortgage, or subordinated to a prime interest-bearing loan; (g) Whether the EFM is being used for a first property purchase, to upgrade from an existing home, to refinance the household's current mortgage, or to release 15 equity for consumption purposes; (h) The type of prime interest-bearing loan and interest rate (e.g. a standard variable-rate loan with a 8.5% interest rate), where applicable; (i) The requested loan-to-value ratio ("LVR") on the prime interest-bearing loan, where applicable (e.g. 50%, 60%, 70%); 20 (j) The requested LVR on the EFM (e.g. 10%, 15%, 20%); and, (k) The applicant's minimum deposit expressed as a proportion of the value of the proposed property (e.g. 3%, 5%, 10%). Note that the rules data outlined above are the bare minimum that the AOS 200 will 25 require in order to complete its processing function. It is also likely that the AOS 200 will receive additional data stipulating whether or not the applicant in question has been approved for the purposes of their prime interest-bearing loan. This data can be received by the AOS in advance of, or subsequent to, processing the rules in order to determine whether the application progresses to the preliminary approval phase. 30 Once the rules data have been extracted by the AOS 200 from the AOD 202, the various static and dynamic feed-forward and feed-back rules can be processed. By 83 5097A-AU-D9 way of illustration, these steps can involve the following automated real-time procedures: Step 1: MMIP 201 inputs EFM application data into AOD 202. 5 Step 2: AOS 200 identifies the arrival of new application data via a real-time electronic connector. AOS 200 consults rules and subject to their requirements, extracts relevant application data from the AOD 202. 10 Step 3: AOS processes initial rules. Simple AOS 200 rules include the following: RI: Is the applicant's age over 18? If yes, proceed to next rule. 15 If no, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. R2: Is the applicant's tenure type freehold or leasehold? If freehold, proceed to next rule. 20 If leasehold, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. R3: Can the applicant supply the minimum required deposit? If yes, proceed to next rule. 25 If no, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. R4: Is the application for a senior, stand-alone EFM, or for an EFM that will be subordinated to a prime interest-bearing 30 loan? If the application is for a senior, stand-alone EFM, extract additional data from TID 112 and AWD 210 and determine whether any further stand-alone EFMs can be 35 accepted. If yes, proceed to next rule. If no, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. 40 If the application is for an EFM that will be subordinated to a prime interest-bearing loan, extract additional data from TID 112 and AWD 210 and determine whether any further subordinated EFMs can be accepted.. If yes, proceed to next rule. 45 If no, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. 84 5097A-AU-D9 R5: Are both the property-type and its geographic location within the acceptable limits as determined by reference to the TID 112 and the AWD 210? If yes, proceed to next rule. 5 If no, stop process, store rejection data in the AOD 202 and signal rejection to MMIP 201. Step 5: If the application fails to successfully progress through the rules, the evaluation process stops once the AOS 200 has stored the rejection 10 data in the AOD 202 and electronically transmitted its decision to the MMIP 201. Step 6: If the application does satisfy all the rules, the AOS 200 transmits its approval decision in real-time to the MMIP 201 while at the same time 15 sending the approved application data to the AWD 210. The application has now moved on to the settlement phases of the processing life-cycle. The specific methodologies that the AOS 200 uses when automatically processing 20 some of its more complex feed-back and feed-forward decisioning requirements (as referred to in illustrative Rules 4 and 5 above) are discussed in more detail. In order for the AOS 200 to determine whether an EFM application should be accepted or rejected, an initial computation of differences (or errors) is undertaken between the idealised portfolio characteristics stored in the TID 112 and the previously approved 25 application attributes that are held within AWD 210. The output of this analysis is then processed by the AOS 200 against the data extracted from the AOD 202, which will in turn inform the AOS 200 as to what actions are appropriate (e.g. accept, reject or request more information). In this first series of algorithms, the AOS 200 estimates whether the application information will satisfy the preferences of investors (based on 30 the target and actual attributes stored in the TID 112 and the AWD 210, respectively), assuming that the application in question contains the standard terms and conditions. In particular, the calculation of the error function, e, will be of the general form, ZF,(TC,,C, )=e (1), i=1 35 where the actual function is based on differences between the target application characteristics (which in turn are a function of the AOS 200 estimated differential 85 5097A-AU-D9 between the attributes stored in the TID 112 and the AWD 210, as outlined previously) and the specific attributes that apply to the applicant in question. That is, I K(TCi - C, )=e (2), 5 where i are the 1 to N application characteristics, andfi is a function of two variables; the target characteristic, TC,, for attribute, i, and the actual applicant characteristic, Ci. The assessed characteristics, i, include: the applicant's age, sex, income, marital status, credit history, current address, previous transaction history, income leverage, 10 loan-to-value ratio (i.e. including the first mortgage, where one exists); the dwelling's location, type, price, size, land-to-value ratio; and, the MMIP's 201 location, network membership, and prior EFM origination history. K, are constants used to weight the relative characteristics, and X is as denoted the upper bound of the sum of acceptable total divergences, e, from the AOS 200 estimated application preferences, TC,. 15 The algorithm's function is utilised in the following fashion. If e > X, then the application will be rejected and does not graduate to the next stage of the evaluation process. This information is communicated to both the AOD 202 and the MMIP 201 that sourced the application in the first place. In order to control for fraudulent 20 behaviour, the AOS 200 also compares all future applicant information against prior submissions that have been stored by the AOD 202 to ensure that the consumer and/or the MMIP 201 has/have not manipulated key variables (e.g. income) to increase the probability of the application's success. If on the other hand e 5 X, then the application passes through to the second AOS 200 evaluation stage, which involves 25 the use of a more sophisticated contract calibration algorithm that is responsible for determining the contract's terms and conditions, and the relevant MMIP's 201 compensation. 2.2 AOS 200 Process 200/2 30 In the event that the application satisfies AOS 200 Process 200/1 and e X, AOS 200 has the capacity to process a more sophisticated round of contract calibration rules that in effect pose the question, "On what specific terms and conditions should this 86 5097A-AU-D9 application be approved?". In response to this question, the AOS 200 can optimise the EFM contract's terms and conditions based on the magnitude of the difference between the applicant's observed characteristics and the preferred attributes determined in analysis undertaken in AOS 200 Process 200/1 based on the difference 5 between the target and actual attributes stored in the TID 112 and the AWD 210, respectively. Once the terms and conditions on which the EFM is offered have been computed, the AOS 200 electronically transmits this information to the MMIP 201 by way of a direct real-time connection, which then informs the applicant of the final contract details. Concurrent with this process, AOS 200 transmits the relevant 10 application data to the AOD 202. Even if the applicant decides to reject the EFM offer, the AOD 202 will have stored a record of the terms and conditions in question for future evaluative purposes. In order to compute the EFM's exact terms and conditions, the AOS 200 employs an 15 algorithm that involves an additive function across the different characteristic-based variables. The calculation of the EFM's terms and conditions function, P, will then be of the form: ZF,(TC,,C,)=P (11). 20 The algorithm's actual structure will be based on differences between the preferred attributes determined in analysis undertaken in AOS 200 Process 200/1 and those that are observed in the application itself: SK,(TC, -- C, P (12), 25 where i,f, TC;, and C; are as defined above, K, are new constants used to weight the relative characteristics, and P is the maximum value of the differences. To ensure that each contract is calibrated appropriately, the most onerous possible terms utilised in equation (2) are once again employed, and if: 30 ZK,(TC, - C,)< P (13), 87 5097A-AU-D9 the AOS 200 chooses to communicate a multiplicity of contractual possibilities back to the MMIP 201. (Observe that if Ki (TC, - C, = P then the equation (2) terms are the only contractual opportunity available to the applicant as their characteristics 5 were at the limit of the calculated error bands and AOS 200 requires the most attractive possible terms and conditions in exchange for approving the application.) These contractual possibilities include (with reference to the description of the EFM contract parameters): 10 (a) a 1-1-1 state-dependent cost of capital; (b) a 1-1-0 state-dependent cost of capital; (c) a 1-2-1 state-dependent cost of capital; (d) a 1-2-2 state-dependent cost of capital; (e) a 1-2-0 state-dependent cost of capital; 15 (f) a 1-3-1 state-dependent cost of capital; (g) a 1-3-2 state-dependent cost of capital; (h) a 1-3-3 state-dependent cost of capital; (i) a 1-3-0 state-dependent cost of capital; or (j) an x-y-z state-dependent cost of capital in addition to a standard time-dependent 20 interest rate, and all derivations therein. Either the AOS 200 or the MMIP 201 can then interact iteratively with the applicant (the former is be possible with an Internet-based EFM distribution system in which the consumer interfaces directly with the AOS 200 without the need for any MMIP 25 201 intermediaries) to determine the applicant's contractual preferences by altering the terms and conditions of the EFM contract until such a point as: K, (TC -C, )=P (14), which represents the bounded maximisation of the calibration function in which some 30 of the C variables have been manipulated by either the MMIP 201 or the AOS 200. 88 5097A-AU-D9 2.3 AOS 200 Process 200/3 In tandem with AOS' 200 assessment in Process 200/1 as to whether applications should be transferred to the contract calibration stage or rejected outright, the AOS 200 also transmits targeted marketing feed-back to the MMIPs 201 as a result of 5 analyses undertaken by the AOS' 200 advertising output algorithm. This algorithm monitors the application sourcing activities of each of the MMIPs 201 relative to the forecasts of the AOS 200, where these expectations are dynamically determined by the AOS 200 over time and conditioned on assumptions regarding the application sourcing impact of relative rates of advertising spend. The AOS' 200 advertising 10 output algorithm compares the performance of each MMIP 201 with that which was forecast, and operates on a percentage tolerance basis as a function of different application characteristics. The algorithm's two primary computations relate to: (1) the difference between the actual and expected sum or rate of application rejections; and, (2) the difference between the actual and expected sum or rate of application 15 approvals. The sum of rejections is given by: " Ri > T, (3). TAP, The rate of rejections is simply the sum of rejections over a given time period: I R, -E >T 2 (4). TAP, 20 The change in the rate of rejections is equal to the difference in the rate rejections over time: I " R1, k R E--- '> T3 (5), tk~ ni~.1A , 1.K i- TAP, 25 where R, denote rejections of applications based on each application characteristic, i, that can be influenced by altering the value and composition of advertising; TAP, represents the total number of applications sourced, and T, are the tolerances associated with the ratio of rejections during any given period. In order to determine whether the application sourcing activities of any MMIP 201 have moved in line with 89 5097A-AU-D9 that which was estimated by the AOS 200, the algorithm can undertake computations of the following kind: 1 "E( ) -z- > T2 (6), tln TA P, 5 where E(Rd is the AOS' 200 expected number of rejections. The introduction of expectations enables the AOS 200 to more closely monitor the performance of each or all MMIPs 201, and can be used in the context of inequalities (3), (4) and (5) immediately above. 10 Variables that can be altered through the use of advertising include the applicant type (e.g., first time buyers, upgraders, refinancers and retirees), and their age, income and location. By focussing on these application identifiers, the AOS 200 is (through its associated MMIPs 201) able to exert an influence on the actual approved pool of applications' exposures to certain demographic cohorts, dwelling types and 15 geographic regions. In particular, the output of inequality (3) above informs the AOS 200 of differences in the ratio of rejected applications to the total number received relative to its preferred tolerance parameter; inequality (4) gives the rates of change in this ratio over time; 20 and inequality (5) provides the first derivative of the rates of change computed in inequality (4). While higher order derivatives can also be utilised, the value extracted from these calculations is a decreasing function of the order of the derivative. All advertising algorithm outputs outlined above are delivered to the AOD 202 and 25 when the tolerances are greater than T,, the AOS 200 notifies the MMIPs 201 of the results and thereby provides them with information required to adjust their advertising programmes to improve application sourcing. The insights contained in the approval data (stored within the AOD 202) are 30 materially different to those relating to the rejections, and therefore warrant further explanation. The acceptances data indicate the number and rates of EFM applications that have been approved by the AOS 200 over time. These in turn highlight the types 90 5097A-AU-D9 of applicants that are prepared to use EFMs and have proved to be acceptable to the AOS 200. The kinds of algorithms that are used to analyse this data include the following inequalities: n A, > T 4 (7) j=1 TAP I " A 5 - A' > T 5 (8) t i= TAP 1 " A I , A >T (9) +1 .. ,, i, ~ T~p t. 1=1 TAPi 1 nE(A,) - A > T2 (10), t , TA P 2.4 AOS 200 Process 200/4 10 Process 200/4 is one of the AOS' 200 feed-back control systems that minimises the estimated errors associated with the attributes of the ex post pool of approved EFM applications stored in the AWD 210 relative to the investors' ex ante preferences as originally specified by the TID 112. 15 As noted previously, the AOS 200 extracts from the AOD 202 what is essentially a mixture of regular and random multi-dimensional data input signals from the MMIPs 201 (random in the sense that it is difficult to predict whether a particular applicant at a given time will be, for example, a first-time buyer, an existing owner, or an elderly home owner; whether they are looking to take out an EFM against a detached house, 20 terrace or unit; and the geographic location of the property in question (e.g. Sydney, Melbourne, Brisbane, Adelaide and Perth), to name just a few potential parameters. The estimated differences between the approved application attributes and the characteristics that were requested by the TID 112 are then fed back to the lID 102 by the AOS 200, such that future computations of the TIS 102 can account for the 25 evolving complexion of the actual pool of approved EFM contracts. It is self-evident that this feed-back mechanism is crucial to the ongoing ability of the AOS 200 to optimise its asset-selection activities and satisfy the end-user investors' requirements. 91 5097A-AU-D9 In process system engineering, there are at least five potential methods of feed-back control, which are known as: (1) two position; (2) proportional; (3) proportional plus integral; (4) proportional plus derivative; and (5) proportional plus integral plus derivative. In this context, the AOS' 200 "manipulated variables" include the EFM 5 contract's terms and conditions, the remuneration supplied to the MMIPs 201, the quantum of finance available to each applicant (i.e. the maximum LVR), and any advertising signals transmitted to the MMIPs 201. Each of the manipulated variables is used by the AOS 200 for administering the various different control methodologies, examples of which are outlined in time-steps below: 10 1. In "two position" control, if e < A , then X applies, or if e > B, Y applies, where A and B are pre-determined AOS 200parameters, and X and Y are the manipulated variables. While this is the simplest form of control, it is also the most rudimentary. 2. With "proportional" control, the manipulated variable, p(t), is determined by a 15 ratio, K,, of the error plus a bias value, p, where the bias value is the state the manipulated variable is in when there is no error. The error itself is defined as the target value less the actual value of the measured variable, while K, is the control ratio applied to the proportional error. This implies: p(t)= P + K,,(TCk -Ck )(15). 20 3. In "integral" control, the manipulated variable is a ratio of the previous errors (excluding the current error), plus a bias value, p . K, is the control ratio applied to the sum of the previous errors for the integral action, and -r denotes the reset time utilized for the integral action (e.g. the integral control is applied every two weeks to all previous errors). Hence: 25 p,, = p + K, - ek (16), Tk= where the error, ek, is equal to TCk - Ck and all other variables are as previously defined. 4. In both "proportional and integral" control, the manipulated variable, p, is a n-1 ratio of all previous errors, ek , including the current error, e,, plus a bias k=1 92 5097A-AU-D9 value, p . As before, Ti is the reset time utilized for the integral action. Accordingly: At n-1 p, = p + Ke, + K, - ek (17). T/ k=1 If the AOS 200 utilises the most sophisticated "proportional-integral-derivative" 5 ("PID") form of control, the manipulated variable, pn, is a ratio of all previous errors, n-1I Z ek , plus a proportion of the most recent error change, - (e,, - e,,), and the bias k=1 At value, p . KD is the control ratio applied to the most recent error. Once again, rD is the reset time utilized for the derivative action. Thus: At "-' rD 10 p, = p+ Kpe + K, - ek + KD - (e, -en_,) (18). r k= At To take a simple example of the AOS 200 feed-back control options outlined above, the AOS 200 application error measurements are inputted into its PID system, which gives rise to the resultant control actions that are transmitted directly back to the IID 15 102. By way of practical illustration, Table 3 below outlines a PID control function where EFM portfolio's average the target dwelling price is $500,000 (as determined by the TIS 100 and communicated to the TID 112) and the average value of AOS' 200 approved dwellings is less than that which is desired. Table 3 shows that the AOS' 200 estimate of the PID control parameter, p,, changes over time based on the 20 errors that it computes. For the sake of simplicity, we suppose that that TD and -r are equal to t (which means that At +r/ = 1 and r, -- At =1), and that Ke, K and KD equal 1, implying that p = 0. These are slightly unrealistic assumptions, given that Kp, K and KD may be too large for a system of this nature. Also observe that K dominates the determination of p,. 25 93 5097A-AU-D9 Table 3 Illustrative AOS 200 Feed-Back Control Case Study n-I At n Actual Price Error e, k-l 1 1.000 1 $400,000 $100,000 100,000 4 0.250 2 $300,000 $200,000 $100,000 100,000 400,000 5 0.200 3 $200,000 $300,000 $100,000 300,000 700,000 7 0.142 4 $300,000 $200,000 $(100,000) 600,000 700,000 10 0.100 5 $350,000 $150,000 $(50,000) 800,000 900,000 The output from the control algorithm p, is then transmitted by the AOS 200 to the lID 102. In turn, the TIS 100 extracts this information from the IID 102 to determine 5 the target value of the originated dwellings, which it outputs to the TID 112. In this example, as the error becomes larger, the signal p,, to the LID 102 also rises indicating that the target price must increase to ensure that the approved EFM portfolio's average price approximates the original $500,000 set point. With the K,, K, KD, TD and r, parameters correctly calibrated, the output p, can be directly added to the target 10 price or any other manipulated variable, such as the dwelling's location, size or type, to name just a few. 2.5 AOS 200 Process 200/5 In AOS 200 Process 200/5, the AOS 200 uses a remuneration algorithm to determine 15 the precise quantum and duration of payments that it makes to the MMIPs 201. In this procedure there are a minimum of two constituent elements to the MMIP's 201 compensation: (1) an upfront charge that is paid by the applicant; and, (2) the ongoing trailing commissions provided by the AServS 300. The primary Process 200/5 computations are undertaken by the AOS 200, with subsidiary computations 20 performed by the AServS 300 over the life of the approved applications. The key factors driving the MMIP's 201 remuneration include: (1) how close the sourced application is to AOS's 200 ex ante preferences as determined with reference to the characteristics stored in the TID 112 and the AWD 210; (2) the historical performance of the MMIP 201 relative to the expectations of the AOS 200; and (3) the investment 25 returns delivered by the EFM over its lifetime. 94 5097A-AU-D9 In order to estimate the MMIP's 201 optimal compensation package, MR, the AOS' 200 uses an algorithm to compute the MMIP's 201 application sourcing performance, and subsequently a remuneration reduction parameter, MRR, which is structured such 5 that the larger the application's divergence from the target criteria, the greater the reduction in the MMIP's 201 remuneration, as given by the following: ZK(TCi -C, =MRR (19). The AOS 200 defines the MMIP's 201 total compensation as the maximum 10 remuneration less the reduction parameter; viz., MR = Max Remuneration - MRR. As the AOS 200 inputs historical data on the behaviour of the various MMIPs 201 into the AOD 202, it can calibrate their incentive structures more intelligently by rewarding past outperformance. Here the end-user investors in the EFM pools will likely be most concerned with at least three variables: (1) the rate of return 15 attributable to each collateral asset (i.e. dwelling); (2) the duration of EFM repayment period, which determines the distribution of the pools' cash-flows; and (3) the contribution of each MMIP 201 to the pool's face value (i.e. the total value of the applications they are responsible for sourcing as a proportion of the total pool value). The difference between each MMIP's 201 performance and that attributable to the 20 average MMIP 201, to highlight just one benchmark, allows the AOS 200 to estimate the Remuneration Adjustment Factor ("RAF"), which is a key input into the MMIP's 201 total compensation, using the following base-case algorithm: KI (ROR, - ROR,,,,, )+ K Duration, - Durationvrag + (20),

K

3 Valuation, - Valuation ) = RA F 25 where ROR denotes the rate of return attributable to the MMIP's 201 EFMs; Duration refers the MMIP's 201 average EFM holding period; and Valuation is the total face value of EFMs that the MMIP 201 has contributed to the pool. MR = (Max Remuneration - MRR) x RAF (21) 30 With the MMIP's 201 compensation parameters computed, the AOS 200 multiplies the percentage outputs by the face value of the EFMs to calculate the upfront 95 5097A-AU-D9 origination fee paid by the applicant. At the same time, the AOS 200 communicates the trailing metrics determined in equation (21) above to the AServS 300 to allow it to compute the value of the ongoing payments that will need to be made to the MMIPs 201. 5 2.6 AOS 200 Process 200/6 After completing AOS 200 Processes 200/1 through 200/5, the AOS 200 finalises in real-time the EFM applications' terms and conditions and transmitted this information to the AOD 202, and, ultimately, via the MMIP 201, to the end-user applicant 10 (assuming that the MMIP 201 intermediates between the applicant and the AOS 200). The AOS 200 also electronically transmits all of the application-specific data to the AWD 210 so that it has a complete record of the attributes of the assets that have been approved. In the context of finalising the transaction, the AOS 200 needs to interface with the MMIP 201 right through to the date of the application settlement, as there 15 may be adjustments to the quantum of funds lent and/or the collateral asset (i.e. property) valuation between the time of application approval and the transaction close. In the event that there are alterations to any of these parameters, the bounded maximisations in AOS 200 Processes 200/1 and 200/2 will be re-run and the results transmitted aback to the AOD 200 and MMIP 201. 20 On the date of the transaction settlement, the AOS 200 facilitates the transfer of the financial capital by directly communicating information about the quantum of capital that needs to be drawn-down to the AWD 210 and hence the UCPs 211. Upon receipt of this data, the UCPs 211 release the funds for transfer to the applicant. Concurrently, 25 the AOS 200 transmits the relevant settlement data to the AOD 202, MMIP 201, and AWD 210. At this point, the AWD 210 has all the information relating to the application characteristics (e.g. age, income, credit history, marital status, dwelling type, price, size, location etc) and the date on which it was settled. As a final task, the AOS 200 communicates the settlement information to the IID 102, which enables the 30 TIS 100 to refine the TID 112 dynamically through time as the applications are approved. As discussed, this continuous feedback-loop minimises any divergences between the target portfolio characteristics and the actual approved pool of EFM 96 5097A-AU-D9 applications by allowing the TIS 100 to adjust its investment preferences with reference to the approved application attributes. 4. The Asset Securitisation System ("ASS" 400) 5 At a time the ASS 400 determines either automatically via pre-specified parameters (e.g. once a certain number or value of EFMs have been sourced, or a particular period of time has elapsed, as revealed by reference to the AWD 210 and the TID 112), or on a discretionary basis by the SM, the ASS 400 utilises its real-time electronic interfaces with the TID 112 and the AWD 210 to compare the 10 characteristics of the EFMs that have been actually approved with the updated investor preferences contained in the TID 112 (recall that these are being continuously refined over time as new information is inputted into the IID 102). The ASS 400 then processes a series of static and dynamic feed-back and feed-forward decision rules to determine what actions, if any, are required in order to optimise the structure of the 15 investment pool comprising the approved EFMs in a manner that most closely matches the preferences of the end-user investors as stored in the TID 112 (e.g. attaching different types of financial rights to the EFM pools, restructuring the cash flow claims of the underlying EFM contracts (into, for example, their principal and income components), or reconstituting the pools using various active and passive 20 optimisation procedures (similar to those previously disclosed as part of the TIS 100 targeting methodologies). This also involves the ASS 400 transferring the originated EFM assets from a warehouse vehicle controlled by the UCPs 211 (who in this scenario would have supplied the AOS 200 with underwriting capital on a relatively short-term, intermediation basis) into the final investment portfolio that is to be 25 marketed to third-party investors, or, in the case of a more simple one-stage capital provision process (whereby the original providers of the underwriting capital are the same investors who intend to hold onto the EFM assets over the long-term), simply calibrating the characteristics of the existing investment pool in which the EFM assets have been held for the duration of the AOS' 200 asset-selection process. 30 For the avoidance of doubt, it should be made clear that as is the case with the ILID 102, TID 112, and AOD 202, the AWD 210 is a computerised database connected by way of direct electronic links to the AOS 200 and the ASS 400. As noted previously, 97 5097A-AU-D9 the AWD 210 maintains details of all the AOS 200 approved applications that are being held as security by the UCPs 211 (and which were originally sourced by the MMIPs 201). These characteristics are collected by the MMIPs 201 and inputted into the AOD 202 (typically via a web-based interface) as part of the AOS 200 asset 5 selection process. Once approved, the application data is transmitted by the AOS 200 to the AWD 210 for the purpose of aggregation, and, if appropriate, subsequently disaggregation, wherein the EFMs can be repackaged and on-sold to their long-term holders. 10 The characteristics collected and stored in the AWD 210 include the following: (a) The applicant's age; (b) The property-type (e.g. fully detached, semi-detached, or attached); (c) The tenure type (e.g. freehold vs leasehold); (d) The property's address; 15 (e) The applicant's current income; (f) The applicant's credit history; (g) Whether the EFM is a senior, stand-alone mortgage, or subordinated to a prime interest-bearing loan; (h) Whether the EFM was used for a first property purchase, to upgrade from an 20 existing home, to refinance the household's current mortgage, or to release equity for consumption purposes; (i) The type of prime interest-bearing loan and interest rate (e.g. a standard variable-rate loan with a 8.5% interest rate), where applicable; (j) The LVR on the prime interest-bearing loan, where applicable (e.g. 50%, 60%, 25 70%); (k) The LVR on the EFM (e.g. 10%, 15%, 20%); and, (1) The applicant's deposit expressed as a proportion of the value of the proposed property (e.g. 3%, 5%, 10%). 30 The ASS 400 continually monitors the AWD 210 subject to its assorted decision-rules such as the UCPs' 211 limits stored in the AWD 210 and/or dynamic investor acceptance preferences contained in the TID 112. As soon as the AWD 210 stored characteristics (e.g. minimum levels of portfolio diversification) reach their acceptable 98 5097A-AU-D9 levels, the securitisation processes outlined above commences. Here it is once again worthwhile noting that ASS' 400 final portfolio construction algorithms encompass all of the procedures used by the TIS 100 to generate the idealised portfolio holdings that it outputs to TID 112 based on informational inputs supplied by the lID 102. 5 Once the securitisation process has been completed, the ASS 400 transfers all of the relevant EFM contract data from the AWD 210 and the Asset Servicing Database ("AServD") 302 onto the Asset Management Database ("AMD") 502. Concurrently, the ASS 400 determines the remuneration of the UCPs 211-in the event that they are 10 holding the EFMs on a short-term intermediation basis-via proceeds realised from the securitisation event. 5. The Asset Servicing System ("ASS" 300) The AServS 300 is responsible for all of the underlying contracts' administration 15 requirements during their life, which are in turn outsourced to third-party Asset Servicing Information Providers ("ASIPs") 301. These demands may involve processing variations to the contract's terms and conditions that are requested by the AMS 500, administering refinancings of the first and subsequent mortgages, events of default, prepayments, renovations to the properties, ongoing management of 20 commissions paid to the MMIPs 201, and the processing of repayment cash flows through to end-user investors in conjunction with the AMD 502. Any data relating to the contract servicing events is communicated by the ASIPs 301 to the AServD 302, which then relays the details onto the AServS 300. In turn, the AServS 300 interfaces with both the AWD 210 during the warehouse period, and the AMD 502 once the 25 contracts have been sold to third-parties. If the AMS 500 decides that it will make adjustments to the EFMs' terms and conditions (e.g., maturity dates, the capital appreciation claim, the capital depreciation claim, and/or the prepayment provisions), it transmits this information to AServS 300 through the AServD 302, which then executes the instructions. Similarly, if either the AMS 500 or the AOS 200 wishes to 30 make adjustments to the trailing commissions paid to the MMIPs 201, these will be communicated for direct action through the AServD 302 and onto the AServS 300. The AServD 302 also receives pool valuation information from the AMS 500 which it combines with the MMIP 201 trailing commission information to ensure that the 99 5097A-AU-D9 MMIP's 201 can be remunerated based upon a proportion of the ongoing pool valuation. 6. The Asset Management System ("AMS" 500) 5 This component of the Overall System 600 optimises the risk-return profiles of the securitised EFM pools. As discussed, these pools were originally sourced and structured via the AOS 200 and ASS 400 in accordance with the preferences delineated in the TID 112 and are continuously optimised through time to ensure maximum utility to the end investor. In order to accurately measure the performance 10 of each investment pool vis-A-vis initial expectations, and to place appropriate restrictions on what the AMS 500 can, and cannot, do in terms of either changes to the underlying contract terms, or with respect to the complexion of new tranches of assets that are introduced into open-ended funds, an investment mandate (hereafter IM) will be designed by the AMS 500 and held by the AMD 502 based on the preferences 15 supplied by the IID 102 and feedback received from the IMIPs 501. The IM imposes constraints on the maximum exposures that the pool can have to any specific geographic region, consumer cohort or dwelling type, and the procedures by which new tranches of assets can be added. It also places precise limits on the nature 20 of the changes that can be made to the consumer's cost of capital (practically encapsulated via the EFM's claim on the collateral asset's prospective price appreciation and depreciation), and the specific circumstances in which such changes can be made. Once computed by the AMS 500, the details of the IM are fed into the AMD 502, where the AMS 500 can dynamically interface with the IM and compare 25 its parameters with the relevant secondary market metrics (e.g. the pool's price, trading volume, volatility, geographic weights, yield etc). To the extent that AMS 500 observes by way of its dynamic decision-rules any material divergences between these parameters, and the differentials exceed the pre-specified thresholds that determine the maximum acceptable limits that are set within the IM, the AMS 500 may have the 30 right to undertake certain corrective actions. In order to effect these actions, a feedback control mechanism is required to determine the size of the adjustments that must be made. For each pool characteristic that has a 100 5097A-AU-D9 performance expectation or target, the AMS 500 controls the system to minimise the error between the target and actual characteristics. Target characteristics include the pool's yield, capital growth, relative performance, total return, trading volume, volatility, correlations, co-integrations, longitudinal diversification and consumer or 5 asset specific attributes. The formula that will govern the feedback control is based on utilising a ratio of current errors, a ratio of historical errors, and the difference between the most current errors. This error feedback control algorithm is similar in nature to those outlined in (2) above and is constituted as follows: p,=p+Ke,, +K, -IeK + KD (e -e_ 1 )(21), rk=1 At 10 where all symbols have a comparable interpretation to those in equation (18) above. This formula is used to alter: the targets portfolio attributes that derive from the TID 112 to filter current applicants; the dynamic pricing of the contractual terms and conditions in response to inputted attributes from the MMIPs 201; and ex ante remuneration strategies structured to motivate the MMIPs 201 to issue contracts in 15 accordance with expectations and the advertising programs, all of which have been discussed in detail previously. These adjustments can be based upon calibrating the parameters Kp, Kr, KD, r/ and TD for each of the target attributes to ensure that the errors in the controlled variable characteristics are minimized over time. The AMS 500 therefore employs a sophisticated model of process control whereby the tuning 20 parameter values are determined either theoretically or by a combination of empirical and theoretical tuning. The AMS 500 also uses feed-forward control in which it develops a model of the way the investors' experience in the pool will be altered by either AMS 500 actions or the 25 behaviour of consumers. As an example, if the yield profile in one specific region is not consistent with that which was originally forecast through the TIS 100, the AMS 500 instructs the AServS 300 (indirectly via the AServD 302) to reduce the EFM's cost of capital amongst particular classes of households (e.g., first time buyers) for a finite period of time so as to stimulate higher trading activity. The key EFM terms 30 and conditions that the AMS 500 can modify as a part of its ongoing portfolio management responsibilities include, but are not limited to, the EFM's : cost of capital 101 5097A-AU-D9 (ie the X:Y:Z relation discussed previously); maximum term; renovation provision; refinancing provision; prepayment provision; and exit penalties. Some of the broad portfolio construction and investment management issues that 5 impact on the way in which the AMS 500 functions are now considered. When investors submitted their initial requirements to the IID 102 (which executes them through interfaces with the cascade of dependent systems), they will have communicated many specific preferences with respect to key portfolio-level 10 characteristics such as active versus passive exposures, the pools' yield profiles, the incidence of their tax liabilities, and longitudinal (or time) diversification as explained above. In turn, these specifications have implications for the current and future structure of the securitised pools. For example, the pools can be closed- or open-end, they can be leveraged by way of issuing debt and/or other specialised financial 15 instruments, and they can be restructured into subsidiary securities that more accurately reflect the preferences of secondary-market participants. The primary tax, yield and diversification considerations are now described with in the context of the types of activities that the AMS 500 is capable of undertaking. 20 6.1 Tax Structuring In most jurisdictions there is a broad distinction drawn for taxation purposes between financial gains or losses sourced on capital account, and those sourced on revenue account. Where differences exist in the treatment of one vis-A-vis the other there are potential comparative advantages that exist in much the same way as they do in the 25 context of gains from trade in international macroeconomic theory. Once the initial securitisation of the EFMs has taken place under the ASS 400, there exists the immediate potential for further subdivisions in accordance with the expectations of various tax clienteles as communicated directly through the IID 102, and the provisions made available to the AMS 500 under the IM. 30 By way of example, take the case of a single EFM. When the underlying home sells, the payoff on the contract will include a component that will accrue to the investor as return of principal and be taken for taxation purposes on capital account (the sum 102 5097A-AU-D9 initially lent to the homeowner), as well as a further proportion of the price appreciation or depreciation on the home (depending on the performance of the underlying asset) that will accrue to the investor as income and be taken on revenue account. For a variety of reasons some investors have a relative preference for one 5 form over the other. It is desirable for the AMS 500 to satisfy these preferences with more specific tax structures, and thereby improve the ability of the Overall System 600 to raise larger sums of capital in the investor market and therefore increase the ongoing quantum of funds available to consumers via the AOS 200 so as to alleviate the burdens which most home owners face. The easiest way for the AMS 500 to 10 facilitate this process is to make a further (legal) restructuring of the rights attaching to each EFM by splitting them according to the two sources of financial gain (or loss) outlined immediately above. This is an automated procedure that is acceptable under the IM, and which is available to the AMS 500 in the event that the appropriate signals are received from the IID 102. The different sets of financial claims are then 15 structured as entirely separate securities: one that has rights to all returns of principal, and another that has more risky rights to the appreciation or depreciation accruing on the contract. To the extent there are any relative preferences for one over the other, this allows and encourages a cross-subsidisation that increases the volume of funds that the AOS 200 can make available to consumers. 20 To illustrate via a crude example, whereas Investor 191A might have only been willing to pay $100 for a security that had claims to both sets of financial rights (i.e. principal, appreciation and depreciation), Investors 191A and 191B together are willing to pay $105 in total for the same combined package owing to their relative 25 preferences and circumstances. This makes it easier to raise funds through the Overall System 600, and by doing so brings together these two disparate groups to achieve the objective providing equity capital. The algorithm the AMS 500 uses to give effect to these subsidiary structures is as follows: 30 Consider bundled investment preferences under the TID 112, assume that there are two for present purposes, which are designated A and B. Let the tax rate associated with each be A CGT and BCGT respectively. Similarly let the effective rates of income tax be denoted in a similar fashion AIT and BIT.) 103 5097A-AU-D9 If AcGT - BCGT > X, where X is positive and real, And BIT -A CGT > Y, where Y is positive and real, then instructions are sent by the AMS 500 to the AMD 502 to split the security into subsidiary securities as outlined above, 5 Else, if ACGT- BCGT > X', where X' is positive and real, And AIT - BIT > Y', where Y'= X' + Z, Z is positive and real, then instructions are sent by the AMS 500 to the AMD 502 to split the security into subsidiary securities as outlined above. 10 Else, bypass the process. After the initial securitisation, any future preferences that are submitted to the IID 102 regarding idealised tax structures (e.g. in light of regulatory changes) are dynamically reviewed by the AMS 500 and if they satisfy the constraints stipulated by the IM 15 while triggering the appropriate thresholds, instructions are transmitted back from the AMS to the IID 102 regarding future pool disaggregation by the ASS 400 on the basis of these preferences. 6.2 Yield Profile 20 The term "yield" is used to refer to cash payments made by the pools or similar investment vehicles to their long-term holders over time (technically, this may described as the cash payment divided by the fund value). Some investors have a preference for higher yields generally, or higher yields at particular times, while other investors have a preference for the alternative (that is, they would prefer that 25 payments were reinvested by the pool and their returns realised in the form of growth in the value of the pool). Similarly, some investors have a preference for less volatile yields while others prefer specific yields at particular times, perhaps to match other liabilities to which they are subject. Of course, one needs to distinguish yield preferences driven by tax considerations from those yield preferences that are purely 30 motivated by expectations regarding the timing of the future cash receipts. To give a relatively straightforward example, pension funds paying complying annuities are in obvious need of a steady and predictable stream of cash flows to 104 5097A-AU-D9 match the revenues of their investment management businesses with their liabilities to unit holders (e.g. pensioners). These funds would likely have a preference for stable yields over the life of the investment. By way of contrast, superannuation funds with no immediate liabilities might display a fairly strong preference for little to no yield 5 since cash distributions paid out on the underlying securities (receipts in the hands of the superannuation funds) would need to be reinvested, presumably incurring transaction costs on the way, and not necessarily in an asset class with equivalent performance characteristics. High yields in this context are seen as a significant performance leakage. There are number of ways in which the Overall System 600 can 10 manage these problems, both in the ASS 400 structuring of the pool immediately prior to the securitisation event, and thereafter at the secondary-market portfolio level, in which case the burden of responsibility falls on the AMS 500. Perhaps the most obvious example of matching yield preferences at either of the two 15 junctions is for either the ASS 400 or AMS 500 to provide a straight swap facility between the two parties that have yield preferences at disparate ends of the spectrum (this action would of course be based on the integrity of the original investor information fed to the ASS 400 or AMS 500 via the IID 102, and any constraints imposed on the AMS to undertake such activities, as determined by the IM). Clearly if 20 one investor prefers yield and the other prefers capital gain (for reasons other than taxation) there are gains from trade to be had if the two can arrive at a mutually agreeable price. One way to do this is for the ASS 400 or AMS 500 to engineer a simple transfer by one investor to the other, whereby the investor 191 A with yield preferences would "acquire" the yield from the other investor 191 B in return for 25 exchanging some of the underlying units of investor 191B in the fund (a "swap"). In terms of codifying whether a yield preference transaction should be undertaken, the following decision steps may be undertaken: If YieldA - YieldB > X, then offer a dividend for a capital swap to investors 191A and 191B where YieldA and YieldB are the yield preferences for investors 30 191A and 191B and X is the differential preference tolerance parameter. For investors who prefer a relatively stable yield over the life of the pool, a reasonably straightforward mechanism to raise the yield in years when it is low is through the 105 5097A-AU-D9 introduction of debt (or leverage), which can be paid back when yields are higher. Once again, the ability of the AMS 500 to execute such intentions is based on any constraints imposed on it by the IM. Assuming that the IM stipulates an acceptable debt-to-equity ratio, there are a variety of forms of debt which the AMS 500 can 5 instruct the ASS 400 to introduce in order to smooth the pool's distributions over time. In each case, the pool effectively borrows from debt providers to pay equity participants in the years when yields are low, and agrees to repay the debt plus interest back later at times when yields are comparatively high. Provided equity investors do not attribute too much risk to the increased leverage, the process of having the AMS 10 500 and ASS 400 re-engineer the cash flows in a manner more in line with their preferences is significantly value accretive. The formulaic interpretation of the above is: If T arg et Yield - Actual Yield > X where X is the investor tolerance, then introduce debt. The quantum of debt finance to be introduced is bounded by the 15 investment mandate. The target quantum of debt finance to be introduced is sufficient to ensure the near term T arget Yield - Actual Yield = 0 . To demonstrate by way of a very simple example, assume that a single pool contains only one EFM and it is known that the home underlying this EFM will sell in two 20 years (in a well diversified and statistically large enough pool the capacity to predict the timing and value of future sales is high). Suppose also that the face value of the contract on day one is $100. Let us assume that at the end of year 2 the contract is going to return $100 of principal and $20 of appreciation with reasonable certainty. At the end of the year 1 a closed-end pool with no leverage would return zero yield (that 25 is, it would not pay a distribution to the investor at the end of that year). Now consider the following alternative scenarios. At the end of year I the pool borrows $5 as debt at the rate of 10% per annum payable in 1 year. It passes the $5 through to the investor as a distribution. At the end of the year 2 the pool pays back $5.50 ($0.50 in interest) and pays the investor the remaining $114.50. It is not difficult to see that the 30 introduction of debt has smoothed the yield over these two years. Another way in which debt can be introduced into the pools is by simply borrowing on day one and buying more assets. Assuming that the cost of debt is lower than the 106 5097A-AU-D9 total return generated by the underlying pool, such an approach increases the expected yield (and capital appreciation) of the pool over its useful life. This procedure, when combined with the mechanism outlined above, can raise and smooth the pool's yield at times when investors have exhibited a preference for such. 5 A suite of derivative products based on the underlying EFM contracts can also be engineered by the ASS 400 or the AMS 500. In much the same manner as the simple example above, this would allow the cash flows accruing to investors to be structured in a manner that is more sympathetic to their preferences. For example, some 10 investors who do not wish to take the risk on the volatility associated with the yield can enter into a "fixed-for-floating" swap with a third-party institution where the ASS 400 or the AMS 500 provides the intermediating services. That is to say, an external derivative provider is prepared to take the risk associated with fluctuations in yield and pay the underlying investor in the pool (who retains rights to all returns of 15 principal) a fixed yield per period. Investors who do not wish to take any risk at all may find it beneficial to enter into a "total return swap". These instruments are well known in financial markets dealing with other underlying assets, but are yet to be developed in relation to financial securities that comprise packaged EFMs. The general economic terms of a total return swap are quite straightforward. One party 20 takes all the risk associated with the return for a price-the return paid to the counterparty (which is generally lower than the expected return, the difference being the premium accruing to the first party who has agreed to bare all the risk). In summary, the yield preferences of investors are processed by the ASS 400 and 25 AMS 500 through the interface of these systems with the AMD 502, IID 102 and TID 112 in a similar vein to that in which the more efficient tax structures were developed. However, rather than splitting financial rights as in the case of the tax methods above, new financial claims (such as debt) are added to the pools at various stages in order to accede to the wishes of investors. This can take place immediately prior to the 30 securitisation, in which case the transaction is managed exclusively by the ASS 400, or subsequent to this date, in which case the transaction is motivated by instructions relayed by the AMS 500, subject to any IM constraints. 107 5097A-AU-D9 6.3 Longitudinal Diversification While the diversification benefits accruing to investors in the pools administered by the AMS 500 are in part crystallized via the asset-selection and securitisation processes, there are potentially significant gains to be obtained in an open-end 5 framework through the continuous and selective introduction of new tranches of assets. The benefits accruing in this regard are twofold: (1) cross-sectional diversification owing purely to the increased size of the pool (which will impact the pool's risk-return profile on three dimensions: (i) the number and type of underlying properties (e.g. detached, semi-detached, and apartments); (ii) the number and type of 10 households (e.g. first time buyers, dwellers in their middle years, and elderly homeowners); and, (iii) the number of geographic regions in which those households and their properties are located (e.g. Sydney, Melbourne, Brisbane, Adelaide, and Perth)); and (2) time-series diversification by way of originating new bundles of assets during different time periods (for example, in year 1, the ASS 400 may place 15 10,000 EFMs into an open-end pool; in year 2, the AMS 500 may instruct the ASS 400 to add another 10,000 contracts (and hence 10,000 properties); in year 3, the process may continue, and so on. In such situations, the investors' reliance on property valuations in one specific year (e.g. year 1) is materially attenuated by continuously adding new tranches of assets that were originated in subsequent periods 20 (e.g. years 1, 2, 3,...,N). It is expected that investors will select their broad investment style (e.g. open-end or closed-end, and the extent to which they would like cross-sectional and time-series diversification) through the LID 102, which is linked to the TIS 100, and through this 25 system, the TID 112. On the other hand, there will be opportunities for certain classes of investors to, in effect, construct their own personal portfolios, and determine the pool's specific weights to various dwelling types, consumer cohorts and geographic regions. In the funds management industry, this would be akin to a "specialist" wholesale investment mandate, wherein the investment vehicle's characteristics are 30 specifically tailored to suit the preferences of one particular institution. This subject was examined in more detail in the present applications discussion of the TIS 100. 108 5097A-AU-D9 For investors who submitted a preference for ongoing time-series diversification through the IID 102, their initial and updated preferences are stored in this database, and communicated to the TID 112 which interfaces directly with the AMS 500. If investors in an existing secondary-market pool wish for new tranches of assets to be 5 added to their fund, then the AMS 500 will learn of these expectations through the same process, which will then transmit the investors' instructions through to the ASS 400 such that additional packages of contracts are introduced to the existing pool, rather than simply placing them into a fresh structure or vehicle. As before, the activities of the AMS 500 will be bounded by any restrictions imposed by the IM, 10 which it interfaces with through the AMD 302. The algorithm the AMS uses to give effect to these preferences can be structured along the following broad lines: Lookup TID 112, If longitudinal diversification preferences = "yes", Then lookup AMD 502, longitudinal diversification preferences, 15 Output AMD 502 to existing pool (also stored in a cell in the AMD 502) Else if longitudinal preferences = "no", Then bypass process Do loop. 20 SUMMARY OF ACRONYMS AMS 500 Asset Management System AMD 502 Asset Management Database AOD 202 Asset Origination Database AOS 200 Asset Origination System 25 AServS 300 Asset Servicing System AServD 302 Asset Servicing Database ASIP 301 Asset Servicing Information Provider ASS 400 Asset Securitisation System AWD 210 Asset Warehouse Database 30 IID 102 Investment Information Database lIP 101 Investment Information Providers IMIP 501 Investor Market Information Provider MMIP 201 Mortgage Market Information Provider TID 112 Target Investment Database 109 5097A-AU-D9 TIS 100 Target Investment System UCPs 211 Underwriting Capital Providers The methods and processes described above in relation to Figs. 2, 3 and 4 are 5 preferably practiced using a conventional general-purpose computer system 60, such as that shown Fig. 5 wherein the processes are implemented as software, such as an application program executed within the computer system 60. In particular, the steps of the processes are effected by instructions in the software that are carried out by the computer. The software can be divided into two separate parts; one part for carrying 10 out the specific processes; and another part to manage the user interface between the latter and the user. The software is able to be stored in a computer readable medium, including the storage devices described below, for example. The software is loaded into the computer from the computer readable medium, and then executed by the computer. A computer readable medium having such software or computer program 15 recorded on it is a computer program product. The use of the computer program product in the computer preferably effects an advantageous apparatus for carrying out embodiments of the invention. The computer system 60 comprises a computer module 61, input devices such as a 20 keyboard 62 and mouse 63, output devices including a printer 65 and a display device 64. A Modulator-Demodulator (Modem) transceiver 76 is used by the computer module 61 for communicating to and from a communications network 80, for example connectable via a telephone line 81 or other functional medium. The modem 76 can be used to obtain access to the Internet, and other network systems, such as a 25 Local Area Network (LAN) or a Wide Area Network (WAN) or other computers 160, 260, ... 960, etc each with their own corresponding modem 176, 276, ... 976, etc and each having a data input terminal 162, 262, ... 962, etc. Each of the computers 160-960 are operated by an MMIP 201, for example. 30 The computer module 61 typically includes at least one processor unit 65, a memory unit 66, for example formed from semiconductor random access memory (RAM) and read only memory (ROM). There are input/output (1/0) interfaces including a video interface 67, and an I/O interface 73 for the keyboard 62, mouse 63 and optionally a 110 5097A-AU-D9 card reader 59, and a further interface 68 for the modem 76 or optionally a camera 77. A storage device 69 is provided and typically includes a hard disk drive 70 and a floppy drive 71. A magnetic tape drive (not illustrated) can also be used. A CD ROM drive 72 is typically provided as a non-volatile source of data. The components 5 65 to 73 of the computer module 61, typically communicate via an interconnected bus 64 and in a manner which results in a conventional mode of operation of the computer system 60 known to those in the relevant art. Examples of computers on which the embodiments can be practiced include IBM-PC's and compatibles, Sun Sparcstations or alike computer systems evolved therefrom. 10 Typically, the application program of the preferred embodiment is resident on the hard disk drive 70 and read and controlled in its execution by the processor 65. Intermediate storage of the program and any data from the network 80 is accomplished using the semiconductor memory 66, possibly in concert with the hard 15 disk drive 70. In some instances, the application program is encoded on a CD-ROM or floppy disk and read via the corresponding drive 72 or 71, or alternatively is read from the network 80 via the modem device 76. Still further, the software can also be loaded into the computer system 60 from other computer readable media including magnetic tape, a ROM or integrated circuit, a magneto-optical disk, a radio or infra 20 red transmission channel between the computer module 61 and another device, a computer readable card such as a PCMCIA card, and the Internet and Intranets including email transmissions and information recorded on websites and the like. The foregoing is merely exemplary of relevant computer readable media. Other computer readable media may be practiced without departing from the scope and spirit of the 25 invention. It should not be lost sight of that the purpose of the computer system 60 is to generate a digitally encoded electric signal (such as that illustrated in Fig. 6) which when applied to an output interface (such as the display device 64 or the printer 65) 30 produces an indicium or indicia which convey information and which are legible or intelligible to a human. For example, the electric signal illustrated in Fig. 6 is a binary encoded signal 01001 which when applied to the display device 64 or printer 65 causes the indicium 9 to be displayed or printed. 111 5097A-AU-D9 The processes can alternatively be implemented in dedicated hardware such as one or more integrated circuits performing the functions or sub functions of the processes. Such dedicated hardware can include graphic processors, digital signal processors, or 5 one or more microprocessors and associated memories. The foregoing describes only some embodiments of the present invention and modifications, obvious to those skilled in the financial and computing arts, can be made thereto without departing from the scope of the present invention. 10 The term "comprising" (and its grammatical variations) as used herein is used in the inclusive sense of "including" or "having" and not in the exclusive sense of ''consisting only of'. 15 112 5097A-AU-D9 ANNEXURE I SAMPLE PORTFOLIO SIMULATION CODE The following is a sample of the portfolio simulation code used by the TIS 100 within a statistical utility known as SAS. As a precursor to the more complicated code below we will first examine some more generic code. A normal variate X with mean MU and variance S2 can be generated with this code: x=MU+sqrt(S2)*rannor(seed); A lognormal variate X with mean exp(MU + S2/2) and variance cxp(2*MU + 2'S2) exp(2*MU + S2) can he generated with this code: x=cxp(MU+sqrt(S2)*rannor.(seel)); The "rannor(seed)" component of the code is random number generator operation in SAS. If we have lognormal mean=mean and variance=var, then the values for MU and S2 should be: MU=og((nean**2)/sqrt(vr+nca 1 1**2)); S2=Iog((var+mean'*2)/(mean* *2)); If the means are stored in the "weight" variable then the TIS 100 can usC a code similar to: data h(drop=weight); set a; do iter=I to 10; mean=weight; var=0.0625; MU=log(( mean**'2)/sqrt(var+mcanei**2)); S2=log((var+mean* '*2)/(mean**"2)); z=exp(MU+srt(S2)*rannor(12345)); output; end; run; The code below produces a data set "new2" which contains the target portfolio weights for each individual SLA in the country (i.e. "sla 105051100" is the field name and its value "0.0028363554" is the target weight in that particular SLA). Around each target portfolio weight the TIS 100 is able to generate a random log-normal distribution with a user defined mean and variance. This code below creates 10.000 iterations (do while (x<=10000);) around each mean/target portfolio weight with a variance of var=0.0000000625. The variance selected is small in order to generate enough dispersion around what is a small mean. All values in aqua are user defined and consequently variable. An added complexity to the TIS 100 model is that portfolio theory requires that the sum of portfolio weights sum to equal I. One further restriction in relation to residential real estate currently is that individuals cannot hold short positions (i.e. negative weights). To over some this component in the simulations the TIS 100 selects one SLA, a residual SLA "sla805406719", to satisfy portfolio and residential real-estate theory. In this code the distribution is not created until all the portfolio weights sum to one and the iterations produced for SLA "sla805406719" are bound by some user defined tail distributions, in this case "0<z805406719<0.002836355". These numbers are selected given that SLA 113 5097A-AU-D9 "sla805406719" should be distributed around 0.0002832844. therefore the bounds specified provide a large distribution of possible values. The calculated weights then become inputs into (he calculation of the portfolio returns and variances; in this case there will be 10,000. data new 2 (drop=mcana mean meanc meand MUa Mib MUc MUd S2a S2h S2c S2d): x=l: w=l: sla 10505 1100 = 0.0028363554 sla 105054800 = 0.0082595742 sla 105055200 = 0.00683 12324 sla 105057070 = 0.0091793455 sla 105057201 = 0.000935261 : sla105057202 = 0.0024583909: sla 105106550 = 0.0 122340982 sla105108050 = 0.0079377533 : sla 105108500 = 0.0094661762 sla105154150= 0.0057311489 sla 105154450 = 0.003867583 ; sla105156650 = 0.0064892567 sla 105157151 = 0.0093935268 sla105157152 = 0.0087832864; sla 105200350 = 0.0 111008 168 sla 105201550 = 0.0081572377 : sla I05252850 = 0.00931 79237 sla 105254900 = 0.0088994456; slal05301450 = 0.0026881479 sla 105301500 = 0.0068261252 sla 105308400 = 0.001979778 ; slal 05350150 = 0.0027752779 sla105351300 = 0.0023408457 : sla 105351900 = 0.0026825 1 34 And so on... var=0.0000000625; do while (x<=10000); mu 10505 I1 00=log((mean 1050511 0**2)/sqrt(var+mcan 105051100**2)); mu I05054800=log((mean 105054800**2)/sqrt(var+mean 105054800** 2)); mu l050552 0 0=log((mcan 105055200**2)/sqrt(var+mcan 105055200*12)): mu 10505 7 0 7 0=log((mean 10505 7 070**2)/sqrt (var+mcan I05057070**'2)); muL 105057201 =log((mean 105057201 **2)/sqrt(var+mean 105057201**2)); mu l 0 5 057202=log((mean 105057202* *2)/sqrt(var+manl 105057202**2)); mu 10510 6 550=log((mean 1051 0 6 550** 2 )/sqit(vir+imecan 105106550**2)); mu 10510 8 050=log((mean 105108050*i:' 2 )/sqt(var+mcan 105108050**2)): mu 10510 8 500=Iog((mean 10510)8500**2)/sqrt(var+mcan 105I08500**2)); 114 5097A-AU-D9 mu 105154150=log((mcan 105154150**2)/sqrt( var+mean 10515415011:*2)) mu 10515 4 4 50=og((mean 10515 4 4 50*" 2 )/sqrt(var+mcan 105 154450*:*2)); mu 10515 66 5 0=log((mean 10515 6 6 50** 2 )/sqit(var+mcan 105156650**2)); mul 10515715 1=log((mean 105 157151 *2)/sqrt var+mean1051 5715 1*2)) mu 105 1571 5 2 =Iog((mean 105157152** 2 )/s rt(var+mcin 105 I 57 I 52**2)); mu 1 05 2 0 03 50=log((mcan 105200350*1*2 )/sqrt(var+mcan 105200350**12)); mu 105201 550=log((mean 105201 550** 2 )/sg rt(var+mcan 105201 550**2)), mu I 0525 2 8 50=log((mean 10 5 2 5 2 85 W**i2)/sqrL(var+mcan 105252850*1:?)); muI 10 5 2 5 49 0 0=log((mean 105254900* 2 )/g rt(vr.+ncal 105254900**2)); mu I0530 14 50=log((nean 105301450** 2 )/sgrt(var+mcan I0530450**2)) mu I05301500=log((mcan 105301500** 2 )/sqrt(var+ncan 105301500*:2)); muI 10 53 0 84 00=log((mean 105308400**: 2)/sqrt(var+mncan 1053084001*2)); mu 105350150=Iog((mcan 105350150*:Il: 2 )/sqrt(vatr+inean 105350150:*:2)); mu 105351 30 0 =log((mean 10535 I 3 00 ::*:2)/sqrt( var+mcan 10535 1300*:*2)); mu 105351 90 0 =log((mcan 10535 1 9 00

*:*

2 )/sqrt(var+mcan l 1053519001**2)); mu 105352550=log((ncan 105352550*:2)/sirt(var+ncan 105352550**2)); mu 1053571 00=log((mcan 1053571 00* 2 )/sqrl(var+mcan 105357 100*2)); muL I 05 4 00 2 00=log((mean I 05 4 00 2 0 0:*1l2)/sgrt(var+ncai 105400200::2)); mu I0 5 4 03950=log((mcan 1054039501: *2 )/sqi(var+Ican 105403950**2)); mu i 10 54 0 6 2 50=log((ncan 1054062501*2" )/sq rt(var+mean 1 05406250**2)); mu I05450 9 00=log((mean I05450900**:1:$2)/sqrt(var+mean 105450900**42)); mu 10545 38 00=log((mean 105453800:1::2 )/sgrt( var+jmcan 105453800*:2)); And so on... s21050511 00=log((var+mncan 105051 100** 2 )/(mean 10505 I 100**2)); s2105054800=og((var+mcan 105054800:*2)/(mcan 105054800*:2)); s21O5O55 20 0 =log((var+rncan 105055200**2)/(mlcan 1 05055200**2)); s21O5O57070=log((var+mean 10505707011*2)/(mcan 1 05057070* 2)); s2105057201 =Iog((var+mean 105057201 **2)/(mean 105057201 *2)); s21055 7 2 02=log((var+mcan 105057202* *2)/(mean105057202:*.2)); s2lO5IO6550=log((var+mean 105106550:1*2)/(imcan 105 106550**2)); s210510 8 O5O=log((var+mcan I 0510OX50**2)/(incan 105108050*1:2)); s2105108500=log((var+mean 105108500**2)/(mcan 105108500**2)); s2105154150=log((var+mcan 105154150*:I*2)/(mcan 105154150*:2)); s210515 4 4 50=log((var+mean 105154450**2)/(rmcan l05 154450*:1*2)); s2 1051 56 6 50=Iog((var+mcan 105 156650**1 2 )/(mean 1 05156650**2)); s2105157151 =Iog((var+mean 10515715 1 :':' 2 )/(meanl 105157152:1:*2)); s2105157]5 2 =log((var+mean 105157152**2)/(mean 105157152*1:2)); s2 105 200 350=og((var+mcan 105200350*:2)/(mecain 105200350*:12)); s2105201 550=log((var+mcan 105201550**2)/(man 105201550* *2)); s2 10 5 2 5 2 8 50=og((var+mean 10525 2 850**2)/(mean 105252850**2)); s2O525 4 90 0=log((var+mcan 105254900**2)/(ican1 105254900:1:*2)); s2105301 4 50=Iog((var+mean 105301 4 50:1*2)/(mcan 105301450*1:2)); s21053015 0 0=Iog((var+mcan 105301500**:l12)/(nean 105301500**112)); s2IO 5 3 0 8 400=log((var+mcan 105308400**2)/(mean I05308400* *2)); s2105350150=log((var+mcan 105350150**: 4 2 )/(mcan 105350150:1*"2)); s2105351300=log((var+rnean 105351 3 00**2)/(mcan 10535 1300:12)); s210535 I 9 0 0 =log((var+mcan 105351 90 0**2)/(mcan 1 0535 190042)); s2I 05 3 5 2 550=log((var+mcan 105352550**2)/(mean 105352550**2)); 115 5097A-AU-D9 s2105357 I00=Iog((var+mcan 1 05357 100**2)/(mcan 105357100**2)); s2105400 20 0=log((var+mncan 105400200**"2)/(rmean 105400200*'2)); s21054 0 3 9 50=og((var+mcan 105403950**" 2 )/(mean 105403950**2)): s21 05 40 62 50=log((var+mcan 105406250**2)/(mean 105406250**12)); s2105450900=Iog((var+mean 105450900*1*2)/(mean 105450900*:*::2)) s2105 4 53 80 0=Iog((var+mcan 105453800**2)/(mean 105453800'**2)); s2IO 5 4 5 6 3 50=log((var+mcan 105456350**2)/(mcan 105456350**"'2)); s210553075 I =log((var+rean 10553075 1 ** 2 )/(mean 105530751 **2)); s2I 0 553075 2 =log((var+nean 105530 75 2 **"2)/(mean 105530752"* )) s21 05 53 0 7 5 3 =log((var+mean 105530 7 53""2)/(mean 105530753** 2)); s2 1055541 00=log((var+mean 105554100**2 )/(mcan 105554100*'2)); s2 1055 5 4 7 00=log((var+mcan I05554700**2)/Cmean 105554700** 2)); s2105555350=log((var+mcan I 05555 3 50*2)/(me anI 05555350**2)); s2 I05555950=og((var+mcan 105555950**"'2)/(inea I 05555950**2)) s2O555 67 0 0=log((var+ncan I 0555 6 70 0** 2)/(mcan 105556700**112)) s2105558250=log((var+nean I0555 8 2 50**2)/(lean 105558250**'2)); s2O5600500=log((var+mean I 05600500**2)/(mean 105600500*::2)) s210560 4 00 0=og((var+mean 105604000**2'")/( mean 105604000:'1**2)): And so on... z 1050511 00=EXP(mu 10505 I 00+SQRT(S210505 I 00)*rannor(3)); zi 05054800=EXP(mfu I 05054800+SQRT(S2I05054800)* ran nor(3)): zl 05055200=EXP(ni I05055200+SQRT(S205055 20 0)*rannor(3)) z I05057070=E-XP(m u 105057070+SQRT(S2I05057070))*rannor(3)); z105057201 =EXP(mu 105057201 +SQRT(S2105057201 )*rannor(3)); zI05057202=EXP(mu l05057202+SQRT(S2105057202)*irannuor(3)); z 105106550=EXP(mu 105106550+SQRT(S2 105106550)*rannor(3)) zI 05108050=EXP(mu 105108050+SQRT(S210510 8 050)*rannor(3)), 7105108500=EXP(nu 1051 08500+SQRT'(S2105108500) *)rannor(3)) zi.05154150=EXP(mu 105154l50+SQRT(S2l05154150) 1 'rannor(3)) z I05154450=EXP(nuL 105154450+SQRT(S2 1051 54 4 5 0)*rannor(3)): z 105156650=EXP(nu l05 156650+SQR''(S2 105 l 5 6 6 50)*'rannor(3)) z 105157151 =EXP(muL 105157151 +SQRT(S210515715I )"rannor(3)): z 105157152=EXP(mu 105157152+SQRT(S21051571 5 2 )*rannor(3)) z)i05200350=EXP(mu I 05200350+SQRT(S2105 2 00 3 50)*rannor(3)) z 105201550=EXP(mu 105201 550+SQRT(S2 10520 1550)*ranno,(3)); z 105252850=EXP(muLI 05252850+SQRT(S2 10 52 5 2 85 0)*rannor(3)); z I 05254900=EXP(muL I05254900+SQRT(S2 10525 4 9 00 )*rannor.(3)); z 105301450=EXP(mu 105301450+SQRT(S2105301 4 5 0)*rannor(3)): zI105301500=EXP(muL 105301500+SQRT(S2105301500)*rannor(3)) z 105308400=EXP(muL I 05308400+SQRT(S2l0530 84 00)*rannor(3)) z105350150=EXP(nu 105350150+SQRT(S2105350150)*'rannor(3)): zI05351300=EXP(muL 105351300+SQRT(S2105351 3 00)"rannor(3)): z10535I900=EXP(muL 105351900+SQRT(S2105351 9 0 0 )*'rannor(3)); zl 05352550=EXP(nuL 105352550+SQRT(S2105352550)*rannor(3)); z105357 100=EXP(muL 1053571 00+SQRT(S21053571 00)*rannor(3)) z I 05 4 00200=EXP(muLI 05400200+SQRT(S2105 4 0 0 20 0)*'rannor(3)) z 05 4 03950=EXP(mu lI 05403950+SQR T(S2 10540 39 50):*rannor(3)): 116 5097A-AU-D9 z105406250=EXP(ImuLI 05406250+SQRT(S2l 0 54 06250)*rannor(3)); z 05450900=EXP(mu I 05450900+SQRT(S2105450900) *rannor( 3)); zI 05453800=EXP(muLI 05453800+SQRT(S2105 4 53800)*rannor(3)); z.l05456350=EXP(muLI 05456350+SQRT(S2105 4 56350)*rannor(3)); z10553075 1 =EXP(nu 105530751 +SQRT(S210553075 1)*rannor(3)); i 05530752=EXP(nuL 105530752+SQRT(S2105530752)* rannor(3)); z I05530753=EXP(mnuL I05530753+SQRT(S2105530753)*rannor(3)); z1055541 00=EXP(mu 1055541 00+SQRT(S21055541 00)*rannor(3)); z 105554700=EX P(mu I 05554700+SQRT(S210 5 5 5 4 700)*ran nor(3)); z 05555350=EXP(mu l05555350+SQRT(S2 I 05 5 55350)*rannor(3)); z 105555950=EXP(mu I 05555950+SQRT(S2 10 5 5559 5 0)*rannor(3)); z 105556700=EXP(nuL 105556700+SQRT(S2105556700)*,rannor(3)); z 05558250=EXP(muLI 05558250+SQRT(S2l0 5 5 5 8 250)*rannor(3)); z105600500=EXP(mul I05600500+SQRT(S2105 6 00500)*rannor(3)); z 05604000=EXP(mu I05604000+SQRT(S2105604000)* ran nor( 3)); z 105604500=EXP(mul I05604500+SQRT(S210 5 60 4 500)*rannor(3)); z105655150=EXP(muL 105655 150+SQRT(S2105655 150)*rannor(3)); z 105656370=EXP(muLI 05656370+SQRT(S2 105 6 56370)* rannor(3)); z10565X000=EXP(mul 10565 8000+SQRT(S2105658000)* ran nor(3)); z1057031 00=EXP(mu 1057031 00+SQRT(S2105703 100)*rannor(3)); z I105708550=EXP(mu I05708550+SQRT(S2 105 7 08550)*rannor(3)); z I10051720=EXP(muL 10051 720+SQRT(S2110051720)*rannor(3)); zl 10054650=EXP(mu I 10054650+SQRT(S21 10054650)*rannor(3)); z110055050=EXP(muL I 10055050+SQRT(S2110055050)*rannor(3)); z 110055901 =EXP(muL 110055901 +SQRT(S2 11005590 1 )*rannor(3)); zlI 10055902=EXP( mul 10055902+SQRT(S21 l00 5 5902)*rannor(3)); zi 10056400=EXP(mu I 10056400+SQRT(S2 I 005 6 4 00)*-raiior(3)); 7.110 1 02700=EX P(mul 1101 02700+SQRT(S2110102700)*rannor(3)); z1101 03050=EXP(mu 1101 03050+SQRT(S2110103050)*rannor(3)); z 1101 03400=EXP(mul 1101 03400+SQRT(S2110103400)*rannor(3)); 7110105650=EXP(muL 1101 05650+SQRT(S2110105650)"'rannor(3)); z 1101 06800=EXP(muL 1101 06800+SQRT(S2110106800)*rannor(3)); z 1101 07000=EXP(mul 1101 07000+SQRT(S2 110107000)*rannor(3)): zI 15054400=EXP(mu I 5054400+SQRT(S2 lI 5054400)'rannor(3)); z I 15056900=EX P(rnu I 5056900+SQRT(S2l I5 0 56900)*runnor(3)); zI1 5058450=EXP(rnu 11505 8450+SQRT(S2 115058450)*rannor(3)); z 115076951 =EXP(muL 115076951 +SQRT(S211507695! )*rannor(3)); z7I15106952=EXP(muL 15106952+SQRT(S2115106952)*rannor(3)); z 115108350=EXP(mu 115108350+SQRT(S2115108350)*rannor(3)); zl 20057551 =EXP(mu 12005755 1 +SQRT(S212005755 l)*rannor(3)); z120074851=EXP(mu120074851+SQRT(S2120074851)*rannor(3)); z.1201 00250=EXP(mLI 120100250+SQR T(S2120100250)*rannor(3)); z120101350=EXP(mu 120101350+SQRT(S2120101 350)*rannor(3)); zl120106611 =EX P(mu 120106611 +SQRT(S2120106611)*rannor(3)); z 120106612=EXP(muL 120106612+SQRT(S2120106612)"iannor(3)); z 120107552=EXP(mu 120107552+SQRT(S212010755 2 )*rannor(3)); z125011801 =EXP(rnu 125011801+SQRT(S2125011801)*rannor(3)): z 12503375 1 =EXP(muL 12503375 1 +SQRT(S2[ 2503375 I )*rannor(3)); And so on... 117 5097A-AU-D9 Z805406719 =1-sum(of z1O5051100--x8O5406279); if O<Z8O54O6719<.0.O28363 5 5 t hen do; O.'UtDUL; X+I; enrd; W+1: uttd; run; 118 5097A-AU-D9 ANNEXURE 2 SAMPLE TIS 100 TARGET PORTFOLIO OUTPUT TIS 100 Target EFM Portfolio Output Passive Value-Weighted EFM Pool Weighting Metric Las Last Last Last Four Four Four Four Quarter Quarter Quarter Quarter Volumc Volume Av. Av. -Based -Based Geographic Median Mean Median Mean Frec Standing Attached Identified Price Price Price Price Properties Properties 10505 5.38% 5.49% 5.39% 5.53% 49.84% 50.16% 10510 3.10% 3.79% 3.11% 3.79% 36.36% 63.64% 10515 5.11% 5.20% 5.16% 5.24% 74.14% 25.86% 10520 2.61% 2.45% 2.62% 2.46% 77.06% 22.94% 10525 2.85% 2.68% 2.86% 2.69% 88.50% 11.50% 10530 1.38% 1.32% 1.35% 1.29% 97.64% 2.36% 10535 1.99% 2.08% 2.01% 2.10% 61.98% 38.02% 10540 2.90% 2.72% 2.94% 2.75% 77.22% 22.78% 10545 2.77% 2.68% 2.78% 2.69% 93.27% 6.73% 10553 1.93% 1.81% 1.94% 1.81% 96.01% 3.99% 10555 4.62% 5.05% 4.65% 5.06% 55.84% 44.16% 10560 4.28% 4.19% 4.32% 4.21% 88.62% 11.38% 10565 3.65% 3.69% 3.66% 3.71% 69.63% 30.37% 10570 2.07% 2.12% 2.09% 2.12% 94.83% 5.17% 11005 0.25% 0.26% 0.25% 0.26% 96.56% 3.44% 20505 3.36% 3.6 1 % 3.36% 3.62% 47.04% 52.96% 20510 2.87% 2.71% 2.90% 2.74% 89.10% 10.90% 20520 0.51% 0.49% 0.51% 0.50% 96.61% 3.39% 20525 1.12% 1.03% 1.13% 1.04% 83.41% 16.59% 20530 1.88% 1.82% 1.90% 1.84% 86.43% 13.57% 20535 0.41% 0.38% 0.41% 0.38% 96.14% 3.86% 20540 1.05% 1.00% 1.03% 0.99% 96.13% 3.87% 20545 2.30% 2.34% 2.32% 2.38% 79.84% 20.16% 20550 3.59% 3.43% 3.64% 3.49% 93.54% 6.46% 20555 1.34% 1.27% 1.36% 1.31% 94.87% 5.13% 20560 0.81% 0.78% 0.82% 0.80% 97.43% 2.57% 20565 3.92% 4.08% 3.98% 4.14% 81.14% 18.86% 20575 0.71% 0.68% 0.73% 0.70% 85.39% 14.61% 20580 0.92% 0.89% 0.90% 0.87% 96.24% 3.76% 20585 0.49% 0.49% 0.50% 0.50% 91.41% 8.59% 21015 0.08% 0.07% 0.08% 0.07% 93.47% 6.53% 23520 0.09% 0.08% 0.09% 0.09% 97.04% 2.96% 30505 7.93% 7.97% 7.92% 7.93% 83.82% 16.18% 30510 0.25% 0.26% 0.25% 0.26% 93.39% 6.61% 30515 0.17% 0.17% 0.17% 0. 17% 99.41% 0.59% 119 5097A-AU-D9 30520 0.67% 0.66% 0.64% 0.64% 95.67% 4.33% 30525 0.46% 0.45% 0.46% 0.45% 95.38% 4.62% 30530 0.63% 0.61% 0.63% 0.61 % 96.27% 3.73% 30540 0.52% 0.50% 0.52% 0.50% 97.08% 2.92% 30545 0.38% 0.38% 0.38% 0.39% 83.70% 16.30% 30550 0.75% 0.77% 0.75% 0.77% 96.64% 3.36% 31020 0.19% 0.18% 0.17% 0.17% 97.60% 2.40% 40505 1.66% 1.58% 1 .65% 1.57% 94.50% 5.500%v 40510 1.67% 1.59% 1.68% 1.59% 85.45% 14.55% 40515 1.73% 1.69% 1.70% 1.66% 83.06% 16.94% 40520 1.94% 1.88% 1.95% 1.89% 90.65% 9.35% 41015 0.16% 0.15% 0.15% 0.14% 97.33% 2.67% 50505 1.71% 1.74% 1.74% 1.78% 72.77% 27.23%/ 50510 1.71% 1.67% 1.70% 1.66% 94.31% 5.69% 50515 2.77% 2.73% 2.78% 2.73% 93.73% 6.27% 50520 2.25% 2.22% 2.27% 2.23% 95.21% 4.79% 50525 1.68% 1.64% 1.68% 1.64% 91.37% 8.63% 5 1 001 0.04% 0.04% 0.04% 0.04% 99.63% 0.38% 52505 0.01% 0.01% 0.01 % 0.010/o 98.89% 1.11% 120 5097A-AU-D9 SAMPLE EQUITY FINANCE MORTGAGE CONTRACT [Name of lender] ABN[ I Loan Agreement General Terms [Month] 2005 C Copyright 2005 IMPORTANT NOTE This document does not contain all the terms of your loan agreement or, if your loan is regulated under the Consumer Credit Code, all of the information we are required by law to give you before the agreement is made. Further terms and information are in the Loan Agreement Details. 121 5097A-AU-D9 About this agreement This agreement is made up of two documents: the Details and these General Terms. They should be read together. The loan agreement documents only become binding on us if you have signed the offer in the Details and we have accepted your offer. The meaning of words printed like this and some other key words is explained at the end of these General Terms. Contents page How you obtain the loan amount I How we lend the loan amount ......................... 2 What must happen first.............................................. I What you must pay and when 3 What you must pay.............................. 4 Repayment .......................................................... 5 Other amounts ......................................................

I Appreciation payment & 6 Requirement to pay appreciation payment ................ 2 Depreciation discount 7 Right to depreciation discount ..................................... 2 8 Calculation of appreciationpayment and depreciation discount 2 9 Improvements........................................................ 4 10 Valuing the property................................................S Early repayment II Repaying early.................................6 Default 12 When you are in default...........................6 13 What can happen then?.............................................. 7 14 Default interest....................................................... 7 General matters 15 Consumer Credit Code............................8 16 Establishing your loan account and accounting for transactions 8 17 Consents.............................................................. 8 18 H-ow we may exercise our rights ................................... 8 19 Blanks ................................................................ 9 20 Our certificates....................................................... 8 21 Assignment........................................................... 9 22 Notices, other communications and service of documents ....9 23 Variations ............................................................ 9 24 Applicable law..................... ................................. 10 25 Meaning of words .................................................. 10 Schedule I -How does the " 121 rule" work?................... 13 Schedule 2 - Examples of an allowance for improvcments...16 Things you should know about your proposed credit contract., 18 122 5097A-AU-D9 [Name of lender] Loan Agreement What you must pay and when General Terms 3 What you must pay How you obtain the loan amount You must repay all amounts you borrow from us and other amounts under clauses 5 How we lend the loan amount and 6. 1.1 We agree to lend you the loan amount at 4 Repayment the time you request it. The loan amount is only available in one drawing. Except to Datefor repayment the extent that the Details indicate that the 4.1 You must repay the total amount owing on loan amount is to be paid to others, we pay the darefor repayment. the money to you or as directed by you or your agent. 4.2 The datefor repayment is the earliest of the following: 2 What must happen first (a) the date on which you transfer However, we only have to lend if: or convey the whole of your interest in the property by (a) we have received: arm's-length bona ide sale; * all securities and related (b) the date on which an authority documents; resumes or compulsorily acquires the whole or part of e evidence of any insurance we the property- or require (such as fire and all risks, public liability insurance and strata title insurance); entry date; or " any report, valuation or survey we (d) if you die (or, in the case of require; two or more of you as joint tenants of the property, the last " any other document or of you dies): information we reasonably require (including title searches, planning - the date of the next transfer or certificates, replies to property conveyance of the property after requisitions and priority your death; or agreements regulating our interest * the date 12 months after you die under the security and those of (or the last of you dies), any other mortgagee); which are satisfactory to us; and (b) ou ae no indefalt uder hisYou agree to notify us as soon am either (b) you are not in default under this(b) agreement (for example, you have above occurs, or As soon as you have paid all relevant fees and charges and reasonable grounds to believe that such have not given us any misleading an event is likely to occur. financial or other information) and no-one who provides a security is in default under that security or has withdrawn from it. 123 5097A-AU-D9 5 Other amount the use of our staffand facilities). Enforcement expenses may become payable under this agreement or any we payers we any beount ic mortgage or other security in the event ofa or may be payable, even if we subsequently breach. discover that it was not necessary to pay the amount (for example, if you renew your Other amounts to be paidMortgaged property but ail to 5.1 aou nst pa d tell us that you have done so, and we then (. ) You must a yd cshre sn w e k take out insurance over the sam e property). (a) alt fees and charges in the circumstances indicated in theand charges circmstncesindcate inthe5.2 To the extent they are known, the amounts Details and any changed or new fee of the fees and charges current at the or charge notified to you; disclosure date are shown in the Details. (b) an amount equal to any government By giving you advance notice (in writing charges and duties on receipts or or by newspaper advertisement), we may withdrawals under this agreement, change the amount, or frequency of calculated in accordance with the payment, of any fee or charge, or impose a relevant legislation. Without new one. Some changes in government limiting this obligation, you must fees and charges are publicized by the pay stamp duty imposed on credit government and not Us. business (Queensland). These are payable whether or not you are Information on cent fees and charges is primarily liable for such charges and duties; availablefromusonrequest. (c) any amount we spend if we take over Appreciation payment and depreciation any works including approved works discount as a result of your failure to comply with any requirement under a 6 Requirement to pay pprecuuon payment security; d) our reasonable expenses of givingayment if th consent, monitoring or taking other steps In connection with any works; 7 Rght to depreciaion discount and () when we ask, any reasonable7.1 If the appraised value on the daeor (f) hen e ak. ay rasonblerepayment is less than the entry value, then you expenses we reasonably incur in may be entitled to have the total amount owing enforcing this agreement or a security after you are in default adjuse by te epr/ciation dtout in (including: clause 8. (i) in the case of a mortgage, 7.2 You are not entitled to the depreciation expenses incurred in discount If you prepay the total amount owing preserving and maintaining the prior to the date/or repayment, or if the totai property - such as by paying amount owing has become immediately due for insurance, rates and taxes for payment under clause 13. the property: and 0 Calcult(ion of appreciation payment and depreciation discount T.1 We do not charge you interest on the amounts we land you under this agreement, unless you 124 5097A-AU-D9 are in default. If you are in default, then we entry value and the repayment charge you interest at the default rate on the value. amounts specified in this agreement. 8.2TAssume that the loan amount was more, or less, than the original loan words, the morgae (as at20% amount, depending on:wod.temrgehaa20 amout, epeningon:loan-to-property-value ratio at the (a) the difference between the re", yuw l ire to repay property's entry value and us on the datefor repayment the repaymentloan amount we originally (b) whether any other amounts become altednti sero payable (for example, if you are in default). (a) if the property's repayment 8.3 When you repay the total amount value is higher than the entry owing, you must pay the value, You must repay us the appreciation payment in loan amount plus an accordance with the "/2/1I rule" appreciation payment equal described in clause 8.5 unless you to 40% of the property's are entitled to receive a value increase; depreciation discount in accordance with the "1/2/1 rule". N if your property's repayment Value is less than the entry 8.4 If you choose to repay early under value, you must repay us the clause I1, or if the total amount loan amount less a owing has become immediately due depreciation discount of 20% for payment under clause 13, then a of theproperty's value different rule - the "1/2/0 rule", decrease; or described in clause 8.9 - operates. You still have to pay the appreciation payment under the value Is the same as the entry "/2/0 rule" but will not be eligible value, you must repay us the for the depreciation discount. to you. 8.5 The "1/2/1 rule" works as follows: The "112/1" description comes from (a) where the repayment value is the relationship between the 20% greater than the entry value, loan, the 40% shar of the gain, and the appreciation payment you the 201/ share of the loss (Ie, must pay is two times the ratio 20/40/20 or 1/2/1). of the loan amount to the entry value, multiplied by the difTerence between the 20% of the entry value, then the repayment value and the entry amounts calculated under the "I I/I value; and rule" (and any appreciation payment or depreciation discount) (b) where the repayment value is vary proportionately. For example, less than the entry value, the Assume that the loan amount was depreciation discount is equal only 10% (ic, one-half of 20%) of to the ratio of the loan amount your property's entry value. Then, to the entry value, multiplied if the property's repayment value is by the difference between the higher than the entry value, you must pay us the loan amount plus 125 5097A-AU-D9 an appreciation payment equal to the "1/2/0 rule" vary proportionately. For 20% of that rise in value, but if the example, assume that the amount we lent you properly's repayment value is less was only 100 (ie, one-half of 20%) of your than the entry value, you must pay Property's entry value. Then, if the property's us the loan amount less a repayment value is higher than the entry value, depreciation discount equal to 10% YOU Must Pay US the loan amount Plus an ofappreciation payment equal to 20% of that rise of te fll i tht vaue.In value; but If the property's repayment value Is less than the entry value, you must pay us 8.7 Schedule I contains several examples that the loan amount. illustrate the application of the "1/2/1 rule". 8.10 If the property's appraised value 8.8 The " 1/2/0 rule" works as follows. stay the same between the entry If you prepay the loan amount date and the date of prepayment, under clause II, or the total amount then the total amount owing under owing has become due for payment the 1/2/0 rule" is once again equal under clause 13, then where the to the loan amount (ie, 10% of the repayment value is greater than the property's appraised value at the entry value, the appreciation entry date). payment you must pay is two times the ratio of the loan amount to the 8.11 Each time the appraised vatue must be entry value, multiplied by the determined for the purposes of this agreement. difference between the repayment we may obtain a complying valuation to value and the entry value. determine the appreciation payment or depreciation discount (if any), at your expense. If you prepay the loan amount under clause 11, or the total amount owing has become due for payment under clause 13, there is no depreciation discount, even if the approvals from authorities (and the governing repaymentbody if the property is pan of a shared scheme) repamentvalu islessthanthebefore you carry out or permit works, or enter entry value. into a contract to carry them out. Assume that the loan amount was 9.2 If the amounts you spend on any approved 20% of the property's entry value works exceed the prescribed amount (you must (in other words, the mortgage has a substantiate those amounts by giving us copies 20%h loan-to-property-value ratio at of bona fide tax involcp), YOU May seek credit the entry date). On that for any increase in the value of the property assumption: attributable to the approved works, by way of an adjustment to the repayment value. (a) if the property's repayment 9.3 However, in order to receive an allowance for value is higher than the entry improvements you must: value, you must repay us the loan amount plus an (a) ensure that the works are approved appreciation payment equal works; and to 40% of the property's value increase; but as at the date the works commence; and (b) if the property's repayment (c) complete the works within 6 months of value is less than the entry value you must repay us the sctin te a t ourabsrlute original amount that we lent to you. (d) get a further complying valuation of the property as at the date the works have 8.9 if the loan amount was other than 20% of the been completed; and entry value, then the amounts calculated under 126 5097A-AU-D9 (e) submit a request to us to give you an allowance (subject to the allowance for the improvements (which qualification below) for that must include evidence that the improvement amount. We will give improvements have been carried out in you an allowance by reducing the accordance with plans and specifications approved by us and by relevant authorities and have been certified fit for purposes of the "1/2/1 rule" by the occupational and amount of the allowance. (Q) give us a survey report, evidence or That is, the repayment value will be upstamping of any security, certificates reduced by the differnc between of compliance, and increased insurance the property's appraised value as at cover and any other information we the date the works commence before reasonably require. the improvements were started, and 9.4 Under clause 9.2 of this agreement, the datete worse cmleted. you cannot qualify for an allowance unless you spend at least the 9.7 Despite clause 9.6, an allowance for prescribed amount on the approved improvements cannot reduce the works. However, any allowance is repayment value below the entry then calculated by reference to the value. value that the improvements add to the property. That is, you need to 9.8 Schedule 2 contains several examples that reach the threshold amount in order illustrate the application ofthis clause 9. to qualify for an allowance for improvements, but the amount of the 99 You must: allowance is not tied to the amount you sent.(a) ensure that the works comply with all youlaws, requirements of authorities, 9.5 The prescribed amount is easements and covenants; and determined from bona fide tax invoices. This means that if you do (b) ensure that the worki are done the work yourself, rather than competently, by licensed contractors engage a builder, your qualifying and In accordance with plans and expenditure will be limited to the specifications approved by us, ar expeno gdstue riean insured as required under any costs of goods, services and materials you purchase; the value of legislation, and are completed within your own labour will not be counted a reasonable time. and for the purposes of the prescribed (c) obtain and give us relevant amount. certificates and permits we require Calculating the allowance (such as certificates of satisfactory completion and compliance, 9.6 Suppose that at some time during occupancy permits, and contracts of the loan term you undertake insurance); and improvements with our consent which qualify you to seek an allowance under this clause 9. Any consent. increase in the property's appraised 9.10 If you fail to comply with clause 9.9 and value attributable to those whether or not we take over the works in improvements (the improvement accordance with our rights under a security amount) will be determined by comparing the complying valuations obtained before and after the improvements, On the daefor for the amount repayment we will give you an you spent on the works; and 127 5097A-AU-D9 (b) you must procure the transfer to us of 10.7 You must give us: any licences or copyrights to prevent a breach of copyright. (a) a COPY Of that contract: 10 Valuing the property * Certified by a solicitor or licensed conveyancer as accurate and 10.1 All valuations in connection with complete; and this agreement (including any made before you entered into this declared by You to show the full agreement) must be carried out by consideration paid and received in valuers selected from our panel of connection with the sale; and approved valuers. (b) any other information you 10.2 The valuations will be made on the have, or to which you have basis of the fair market value of the access, which may be relevant property, being the price that a to the value of the property willing but not anxious seller would (for example, information accept from a willing but not about an actual or prospective anxious buyer. rezoning of the area, or a proposed development of 10.3 A valuation or determination that another property which may conforms to the process set out in have a negative or positive this section is a complying impact on the value of the valuation. property). 10.4 You must co-operate fully in the i0.8 If. valuation process, including by giving unhindered access to the (a) we consider for any reason property to valuers and other that the consideration shown consultants and giving us other on the face of a contract may information that we reasonably not be the fair market value of require. the property or the full consideration paid or received; 10.5 If the property is purchased or sold or on the open market, we may choose to accept as the fair market value of (b) the property was acquired or the property (at the date of the sold other ta by an arms. transfer), the consideration shown length contract executed by on the face of the relevant contract. You (for example, where it was transferred to you by a 10.6 You must consult with us before you relative, or was compulsorily sell the property. (This allows us to acquired from you, or was discuss with you the various tranferred by your executor), procedures, rights and obligations under this mortgage, Including how then we may Instruct one of our the property's appraised value is approved valuers to value the calculated.) In selling, you must properly as at either or both or the take reasonable steps to achieve the entrydare and the datefor fair market value for the property at repment or any other date on the time of the sale, which the property is bought or sold. If we consider that the property was 10.9 You must pay the costs of this sold below fair market value, we can valuation and any inspections require a valuation. reqyored by it, 128 5097A-AU-D9 10.10 f you do not agree with that necessary to ascertain the property's valuation, then you may ask us to appraised value). nominate another approved valuer to conduct a second valuation, also at Your decision Is final your expense. 11.3 Once you have notified us of your decision to repay, you cannot change your mind 10.11 If the second valuation differs from you must repay on the date you told us you the first, then the fair market value would prepay. of the property is to be either the mid-point of the two valuations or Default the consideration shown on the face of the contract, at our election. 12 When ar you In default? Alternatively, we may elect to invoke the provisions of You ar in default if. clause 10.13. (a) you do not pay on time a~ny amount 10.12 Except as provided in clause 10.13. you must due under this agreement or another pay for any valuation that is required in loan agreement you have with us; or connection with this agreement. For example, if you wish to prepay under clause I, a (b) you do something you agree not to complying valuation must be obtained to do, or you don't do something you determine any appreciation payment. If you agree to do under this agreement; or do not agree with a valuation under this agreement, then you may ask us to nominate (c) you give, or another person gives, us another approved valuer to conduct a second incorrect or misleading information valuation, also at your expense. in conectio with this agreement or 10.13 If we so elect (acting reasonably), we may seek a security- or one or more further valuations, at our expense. The value of the property will then be the mid. (d) you are in default of another security point between the closest two of all the interest affecting the property, valuations obtained under this Schedule. whether or not any mortgagee of the property (except us) exercises a 10.14 Any complying valuation will be considered a power of sale or a power of complying valuation as at a particular date If foreclosure; or that date is within a period of 42 days before or after the date of the valuation. (e) we reasonably believe you or another person acting an your behalf has Early repayment acted fraudulently in connection with 11 Repaying early this agreement or a security; or (f) we reasonably believe you knew or How much and when you may prepay ought reasonably to have known that 11.1 You may repay the total amount owing the entry value was not the fair (but only the whole of the total amount market value of the property at the owing) at any time before the date for repayment in accordance with this clause II.(g) you become, or a security provider becomes, insolvent or steps are taken 11.2 To prepay, you must: to make you or them so; or (a) give us at least I month's notice of (h) anybody else (whether or not your intention to prepay and the date purporting to act on your behalf, or on which you intend to prepay; and as your executor, administrator or trustee in bankruptcy) transfers or (b) get a complying valuation as at the conveys the whole or part of the date of the prepayment (this is property or 129 5097A-AU-D9 (i) you transfer or convey less than the 14 Default Interest whole of the property; or (j) you transfer or convey the whole or Under this agreement, a default rate of part of the property other than by interest may be charged when payments arm's-length bona fide sale; or (k) you cease to reside in the property as Default Intert your principal place of residence 14.1 If you are in default, the default rale of unless we have waived this interest set out in the Details may be requirement in writing; or charged daily on any amount while it is (1) you declare a trust over the whole or part of the property or any estate or Note: The overdue amount on which interest you hold in it; or default interest is charged can include the total amount owing if (M) you are, or a security provider is, in that total amount owing becomes default under a security or withdraws due for payment under clause 13 (for from it or breaches its terms, or a example, because you do not correct security is or may be unenforceable. a default within the period of grace) 13 Wat an hppe the? I and you do-not pay it immediately. 13 What can happen then? Capialising default Interest Notice and grace period 14.2 If you do not pay these default interest 13.1 If you are in default, we may give you a charges, we add them to the overdue notice stating that you are in default. amount monthly (this is known as 'caMpitalising"). You are then liable for If you do not, or cannot, correct the default default interest charges on the new amount within any grace period given in the notice overdue. or required by law (or If you are in default again for a similar reason at the end of that Default rate period), then, at the end of that period and 14.3 The default rate is 4% per annum above without further notice to you, the total the 90-day Bank Bill Swap Reference Rate amount owing becomes immediately due last published in the Australian Financial for payment (to the extent it is not already Review on or before the date for payment due for payment). of the amount on which the default interest is payable (and if no such rate has been We may then sue you for that amount, or published for 7 days, then at another rate enforce any security, or do both. we set in good faith). Default interest accrues daily from (and Including) the date Exceptions to notice and grace period on which it commences up to (but 13.2 In limited circumstances set down by law excluding) the date of actual payment. (such as if we are unable to locate you), we Default interest is calculated on actual days need not give the notice or wait until the elapsed and a year of 365 days. end of any grace period given in a notice. Instead, if you are in default, the total Obligations not affected amount owing becomes immediately due 14.4 Your obligation to pay on time is not for payment without notice. cancelled by this clause. We may then immediately sue you for that amount, or enforce any security, or do both. 130 5097A-AU-D9 General matters changes (including to default interest charges). 15 Consumer Credit Code 1111110 16.4 Unless otherwise specifically provided, we This clause applies to the extent that a may use any payment we receive in Consumer Credit Code applies to this connection with this agreement to reduce agreement. the total amount owing in any order we choose. If: 16.5 (We give you a statement for your loan (a) that Code would otherwise make a account every 6 months (generally, in July provision of this agreement illegal, and January) until there is no balance void or unenforceable; or owing on your loan account.] (b) a provision of this agreement would 17 Consents otherwise contravene a requirement of that Code or impose an obligation You must comply with all conditions and or liability which is prohibited by requirements in any consent we give. that Code. 18 How we may exercise our rights this agreement is to be read as if that provision were varied to the extent 18.1 We may exercise a right or remedy or give necessary to comply with that Code or, if or refuse our consent in any way we necessary, omitted. consider appropriate including by 16 Establishing your loan account and accounting Imposing conditions. for transactions 18.2 If we do not exercise a right or remedy fully or at a given time, we can still 16.1 You authorise us to open a loan account in exercise it later. your name and to debit to it each part of the amount you borrow on the date we lend 18.3 Our rights and remedies under this it and any amount which you must pay agreement and any security ar in addition under this agreement on or after the date it to other rights and remedies provided by becomes due, without first notifying you. law independently of it. 16.2 We may assign any date we consider 18.4 Our rights and remedies may be exercised appropriate to a debit or credit to the loan on our behalf by: account (except that, in the case of a debit, the date must not be earlier than the date 0 any of our directors or on which the relevant transaction occurs). However, we credit payments to your loan account as soon as practicable after we 18.5 We ar not liable for loss caused by the (and not any other person) actually receive exercise or attempted exercise of, failure to them. This is not necessarily the same day exercise, or delay in exercising, a right or that you pay. remedy. 16.3 We may subsequently adjust debits and 18.6 We may do anything which you should credits to the loan account and the balance have done under this agreement or a owing on your loan account so as to security but which you have not done or in accurately reflect the legal obligations of our opinion have not done properly. You you and us (for example, because of an Must pay US any amounts we expend or error or because a cheque is dishonoured). expenses we incur in so doing. I6.we do this, We may make consequential 131 5097A-AU-D9 19 Blanks (d) sent by fax to your residential or business fax number last known to us.22.4 You agree that we may fill in any blanks in Communications to us must be: any document related to this agreement (such as an acknowledgment). (a) left at: 20 Our certileates any office we tell you; or We may give you a certificate or formal our registered office; or statement about a matter or about an (b) sent by prepaid post or fax to any of amount (including break costs) payable in those places. connection with this agreement. This is sufficient evidence of the matter or 22.5 A communication is taken to be given: amount, unless it is proved to be incorrect. 21(a) in the case of a communication given 21 As~gnentpersonally - on the date stated on the communication or the date it is 21.1 We may assign or otherwise deal with our received by the person to whom it is rights under this agreement in any way we addressed, whichever is the later; or consider appropriate. You agree that we may disclose any information or (b) in the case of a communication sent documents we consider desirable to help us by post -on the date stated on the exercise this right. You also agree that we communication or the date when it may disclose information or documents at would have been delivered in the any time to a person to whom we assign ordinary course of post, whichever is our rights under this agreement. the later, or 21.2 Your rights are personal to you and may (c) in the case of a communication sent not be assigned without our written by fax - on the date stated on the consent. communication or the dnte on which the machine from which it was sent 22 Notices, other communications and service of produces a report indicating that the documents communication was sent to the fax or other number of the person to whom 22.1 Notices, certificates, consents, approvals it is addressed, whichever is the later, and other communications in connection or with this agreement must be in writing unless we agree in writing otherwise. (d) in the case of a communication given by newspaper advertisement - the 22.2 Communications from us may be signed date it is first published by our solicitor, or by any of our officers whom we have authorised to communicate 22.6 We may serve any document in a court to you. action (including a wit of summons, other originating process or third or other party 22.3 Communications to you may be: notice) on you by delivering it to the property or by leaving It there. This clause (a) given personally; or does not prevent any other method of service. (b) left at your residential or business address last known to us; or 22.7 You and we agree that each will exercise their rights under this agreement and any (c) sent by post to your postal or residential or business address last known to us; or 132 5097A-AU-D9 23 Variations special or bank holiday in New South Wales. We may vary any term of this agreement. (if a Consumer Credit Code applies to this business day means a day other than a agreement, we may only do so in Saturday or Sunday, or a public or accordance with that Code). We must special holiday in New South Walcs. notify you of any variation before it takes effect. complying valuation means a valuation that complies with the processes 24 Applicable law (including the appointment of valuers) set out in clause 10. This agreement is governed by the law in datefor repayment means the date on force in New South Wales. You and we which the total amount owing must submit to the non-exclusive jurisdiction of be repaid in accordance with clause the courts of that place. 4.2. 25 Meaning of words default rate see clause 14. the "1/2/0 rule" is described in clause 8.9. depreciation discount means the amount calculated as the depreciation the "1/2/1 rule" is described in clause 8.5. discount in accordance with the appraised value, in relation to the "1/210" rule. property, means the fair market value Details means the Loan Agreement Details as agreed by you and us in writing, which are part of this agreement. or failing agreement as ascertained by a complying valuation. the disclosure date is stated in the Details. appreciation payment means the amount entry date means the date you tell us to calculated as the appreciation lend you the loan amount (even payment in accordance with the though the actual date we tend you "1/2/1 rule" or "1/2/0 rule". the loan amount may be a later date). approved works means all works in entry value means the appraised value on connection with which you have the entry date less any amounts that obtained our consent and all you or we or any other person necessary approvals from authorities receives in connection with the (and the governing body if the compulsory acquisition of an interest property is part of a shared scheme) in the property (such as before you carry out or permit works, compensation if the property is or enter into a contract to carry them acquired for a road-widening out. scheme). balance owing on your loan account governing body means each entity which means, at any time, the difference manages or administers any shared between all amounts credited and all scheme of which the property is pan. amounts debited to you under this agreement at that time. When this Improvement amount means any increase amount is to be calculated for the end in the appraised value of the of a day, it includes all debits and property as a result of any credits assigned to that day. improvements earned out in accordance with this agreement. banking day means a day other than a Saturday or Sunday, or a public, Insolvent mean being an insolvent under administration or insolvent or having 133 5097A-AU-D9 a controller appointed (each as security means each security interest defined in the Corporations Law), in described in the Details under receivership, in receivership and "Security" and any substitute Or management, in liquidation, in additional security Interest given in provisional liquidation, under connection with this agreement. administration, wound up, subject to any arrangement, assignment or The Property the subject of any composition, protected from mortgage Of real property, described creditors under any statute, dissolved in the Details under "Security", (other than to carry out a comprises: reconstruction while solvent) or otherwise unable to pay debts when 0 the land described in any security and they fall due. 0 each fixture, Structure or improvement on loan account means an account we the land or fixed to it; and establish in your name for recording all transactions in connection with 0 your estate and interest in the land and this agreement. rights which may have arisen or may the loan amount is set out in the Details. prescribed amount, for the purposes of property iwta on and clause 9, means an amount in Australian dollars we determine from 0 rights to set off any money we owe the time to time, in our absolute mortgagor against the amount secured by discretion. that mortgage. the property means each one or more of security Interest means any security for the the following which the context payment of money or performance of allows: obligations including a mortgage, charge, lien, pledge, trust or power, e the land described in any security and Security interest also includes a * each fixture, structure or improvement on the land or fixed to it; and securityprovider means each person (other * your estate and interest in the land and rights which may have arisen or may shared scheme means each scheme or plan arise in connection with it. regulated by a shared scheme law that affects the property. Examples repayment value means the appraised of properties which are often part of value on any of: a shared scheme are strata or stratum title home units, and town houses e the date for repayment- of and properties in integrated * the date prior to the datefor repayment on which you prepay the total amount shared scheme law means any legislation owing in accordance with clause I1; or that provides for the: * the date the total amount owing becomes * subdivision and development of land immediately due for payment under with shared property; or clause 13, as applicable. The repayment value may be adjusted if we give you an 0 management of land which is subdivided allowance under clause 9. and has shared property; or 134 5097A-AU-D9 e management of subdivided buildings. meaning of the words to which the example relates to that example or total amount owing means, at any time, examples of a similar kind- and the balance owing on your loan account at that time, plus all accrued the word person includes an individual, default interest charges and other a fim, a body corporate, an amounts which you must pay under unincorporated association or an this agreement but which have not authority. been debited to your loan account at The singular includes the plural and vice that time (including the appreciation versa. payment) less any amounts that have not been credited to your loan Headings are for convenience only and do account (including any depreciation not affect the interpretation of this discount). agreement. we, us, our mean [Name of lender] (ABN ]) and includes its successors and assigns. works means: e building work; or e excavation or earthworks on the property, or e work demolishing, removing or altering any part of the property, or e any building or development work required by an authority in connection with the property. you means the person or persons named in the Details as "Customer". If there are more than one, you means each of them separately and every two or more of them jointly. You includes your successors and assigns. A reference to: e any thing includes the whole and each part of it; and * a document includes any variation or replacement of it; and * law means common law, principles of equity, and laws made by parliament (and laws made by parliament include regulations and other instruments under them, and consolidations, amendments, re-enactments or replacements of them); and * the words including or such as when introducing an example do not limit the 135 5097A-AU-D9 Schedule 1 - How does the "1/2/1 rule" work? The following examples illustrate how the " /2/) rule" operates: Note: the examples assume that the total amount owing has not increased under other provisions of the agreement - for example, because you are in default or because we have expended money where you have failed to do something under the agreement and you have not repaid those amounts. Example 1: Assume that we lent you $100,000 on I June 2005, and that at the entry date your property's appraised value was $500,000. Note: if you and we cannot agree on the appraised value, it is set by a valuation process; the appraised value might not be the same amount as the purchase price. The mortgage has a 20% loan-to-property-value ratio, because $100,000 is equal to 20% of the property's appraised value. (a) I f the property's appraised value on the datefor repayment has increased to $600,000, then the total amount owing includes the original $100,000 loan amount plus an appreciation payment equal to 40% of the value gain between the two dates. You must pay us an appreciation payment of $40,000 (ie, 40% of the property's S100,000 value gain), in addition to the $100,000 we originally lent you. The total amount owing has therefore increased and is $140,000. (b) If the property's appraised value on the dotefor repayment has decreased to $400,000, then the total amount owing includes the original $100,000 loan amount less a depreciation discount of 20/9 of the value loss between the two dates. We must bear $20,000 of the loss (ie, 20% of the property's $100,000 value decrease). The total amount owing therefore reduces to 580,000 (ie, the S 100,000 we originally lent you minus the $20,000 loss that we bear). (c) If the property's appraised value on the date for repayment remains the same (ie, at 5500,000). then the total amount owing is the original $100,000 loan amount. That is, you repay us the same amount we originally lent you. These three scenarios are illustrated in the table below. 136 5097A-AU-D9 Calculating the efTect or any appreciation payment or depreciation discount on the total amount owing when a $500,000 property's appraised value rises, falls or stays the same Scenario I: Scenario 2: Scenario 3: property's property's property's appraised value appraised value appraised value rises falls __stays same Property's original appraised $500,000 $500,000 S500,000 value Property's new appraised value $600,000 $400,000 $500,000 Property's value change +$100,000 -$100,000 SO Your share of the value change +$60,000 -$80,000 so Our share of the value change +$40,000 -$20,000 so (appreciation (depreciation payment) discount) ILoan amount $100,000 $100,000 S100,000 Total amount owing $140,000 $80,000 1 S00,000 Example 2: If the facts were the same as in Example I, except that we had lent you $50,000 (ic, 10% of the $500,000 property's appraised value), then the calculations would be as follows: (a) If the property's appraised value on the datefor repayment has increased to $600,000, then the total amount owing includes the original $50,000 we lent youplus an appreciation payment equal to 20% of the property's $100,000 appraised value increase (ie, $20,000). The total amount owing is therefore $70,000. (b) If the property's appraised value on the datefor repayment has decreased to S400,000, then the total amount owing includes the original $50,000 we lent you less a depreciation discount equal to 10% of the property's $100,000 appraised value decrease (ie, $10,000). The total amount owing has therefore fallen and is $40,000. (c) I f the property's appraised value on the datefor repayment stays the same at $500,000, then the total amount owing is equal to the original $50,000 we lent you. The total amount owing has therefore stayed the same. 137 5097A-AU-D9 The appreciation payment can also be expressed by the following formula: RA= (1)(v, -v,) v, Where: RA is the appreciation payment I is the loan amount v. is the entry value v, is the repayment value. Similarly, the depreciation discount can be expressed by the following formula: RD=(-){v, -v,) Where: RD is the depreciation discount I is the loan amount v. Is the entry value v, Is the repayment value. 138

Claims (5)

1. A method of determining a wholly or partially collateral dependent finance provider's share of capital appreciation of a collateral asset by varying a provision of a wholly or partially collateral dependent finance agreement between a finance provider and the owner of an asset used as said collateral and having an entry value, said agreement providing said finance provider's right to a share of any capital appreciation of said collateral asset as a proportion of the collateral asset's capital appreciation and defining a quantum derived from said share of said capital appreciation required for the purposes of consummating said finance agreement, said method comprising the steps of: (i) using a data processing apparatus to compute said quantum due to said finance provider in accordance with said agreement, (ii) using said data processing apparatus to compute whether said provision is in accordance with a Consumer Credit Code, or similar, and (iii) using said data processing apparatus to vary said provision if the computation of step (ii) determines that said provision is not in accordance with said Code, such that said provision is varied to the extent necessary to comply with said Code.

2. A method of generating a digitally encoded electronic signal representing either the wholly or partially collateral dependent finance provider's share of capital appreciation of a collateral asset as a proportion of the value of said collateral asset's capital appreciation, or a quantum required for the purposes of consummating a wholly or partially collateral dependent finance arrangement (irrespective of whether such quantum is a payment from or by the recipient of the finance to the provider, or net of or includes payment, credit, offset or otherwise by the provider of the finance to the recipient, depending on the arrangement structure), such that the overall rate of return either paid by the recipient of the finance, or the rate of return generated by the provider of the finance, does not exceed a predetermined maximum rate of return, said method comprising the steps of: 139 DUYJ/A-AU-LJY (iv) inputting into said processing apparatus input data comprising a combination of : said predetermined maximum rate; a predetermined share of capital appreciation (whether constant or a variable function of collateral appreciation or time); said entry value of said collateral for the purposes of commencing said financing arrangement; a final value of said collateral for the purposes of consummating said financing arrangement; and a time period over which the financial arrangement exists, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in any one of steps (v) - (vi) hereof; and (v) instructing said data processing apparatus to: (a) return the rate of return associated with said wholly or partially collateral-dependent financial arrangement based on said predetermined share of capital appreciation; (b) determine if the quantum generated by (a) hereof exceeds said predetermined maximum rate; and, if so, (c) adjust said rights to said predetermined share of capital appreciation such that the rate of return is equal to or less than said predetermined maximum rate; or (vi) instructing said data processing apparatus to: (d) return the quantum or quanta owing for purposes of consummating said financing arrangement assuming said predetermined maximum rate applies; (e) return the quantum or quanta owing for purposes of consummating said finance arrangement assuming capital appreciation sharing absent said predetermined maximum rate; (f) return the actual quantum or quanta owing as the lesser of (d) and (e) hereof; or (g) return the same quantum or quanta (net of other flows if any) as returned in (f) hereof determined, at least in part, by reference to said predetermined maximum rate.

3. A method of determining a wholly or partially collateral dependent finance provider's share of capital appreciation of a collateral asset by varying said collateral dependent finance provider's rights to said share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation by reference to a predetermined reference index or reference appreciation rate, said method comprising the steps of: 140 DUV /A-AU-UV (I) inputting into data processing apparatus input data comprising a combination of: a first predetermined share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's total capital appreciation and a second predetermined non-zero share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation; a rate of said collateral appreciation; a rate of said reference index appreciation; and a reference rate, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in steps (II) - (III) hereof; (II) determining said appreciation share as said first predetermined value for the proportion of said collateral appreciation which relates to said collateral appreciation rate which is less than said reference index appreciation rate or said reference rate; and (III) determining said appreciation share as said second predetermined value for the proportion of said collateral appreciation which relates to said collateral appreciation rate which is greater than said reference index appreciation rate or said reference rate.

4. A method of generating a digitally encoded electronic signal representing either the wholly or partially collateral dependent finance provider's share of capital appreciation of a collateral asset or a quantum required for the purposes of consummating the corresponding wholly or partially collateral dependent finance arrangement (irrespective of whether such quantum is a payment from or by the recipient of the finance to the provider, or net of or includes payment, credit, offset or otherwise by the provider of the finance to the recipient, depending on the agreement structure), in each case said quantum varying with, or being determined by, reference to an index or a reference rate, said method comprising the steps of: (A) inputting into data processing apparatus input data comprising a combination of: a predetermined reference rate; an entry value of said collateral for the purposes of commencing the financing arrangement; a final value of said 141 collateral for the purposes of consummating said financing arrangement or determining an amount owing under said financing arrangement; an initial reference index value determined at the time of determining said entry collateral value; a final reference index value determined at the time of determining said final collateral value; a first predetermined share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation in the event said collateral appreciation rate is not above that of said reference index or does not exceed said reference rate; a second predetermined non-zero share of capital appreciation of said collateral asset as a proportion of the value of said collateral asset's capital appreciation in the event said collateral appreciation rate exceeds that of said reference index or said reference rate; and a number of rate periods that the financing arrangement remains outstanding, said combination comprising input data sufficient to calculate or return output instructed of said data processing apparatus in any one of steps (B) - (D) hereof; (B) instructing said data processing apparatus to: (a) determine whether the rate of appreciation of said collateral asset exceeds that of said reference index; and (b) if said collateral appreciation exceeds that of said reference index as determined by (a) hereof, calculate the quantum of the finance provider's rights to capital appreciation by (c) said entry collateral value multiplied by said first predetermined share multiplied by the result of said final index value divided by said initial index value less 1, plus said second predetermined share multiplied by the result of, said final collateral value less the result of said entry collateral value multiplied by said final index value divided by said initial index value, or (d) the same quantum determined in (c) hereof determined, at least in part, by reference to said first and second predetermined shares; or (e) if said collateral appreciation does not exceed that of said reference index as determined by (a) hereof, calculate the quantum of the finance provider's rights to capital appreciation by returning (f) said first predetermined share multiplied by the result of said final collateral value less said entry collateral value, or (g) the 142 JV7 /-IAU-LJY same quantum determined in (f) hereof determined, at least in part, by reference to said first predetermined share; or (C) instructing said data processing apparatus to: (h) determine whether said collateral appreciation rate exceeds that of said reference rate; and (i) if said collateral appreciation rate exceeds that of said reference rate as determined by (h) hereof, calculate the quantum of the finance provider's rights to capital appreciation by (j) said initial collateral value multiplied by said first predetermined share multiplied by the result of, 1 plus said reference rate all raised to the power of said number of periods less 1, plus said second predetermined share multiplied by the result of, said final collateral value less the result of said initial collateral value multiplied by, 1 plus said reference rate all raised to the power of said number of periods, or (k) the same quantum determined in (j) hereof determined, at least in part, by reference to said first and second predetermined shares; or (1) if said collateral appreciation rate does not exceed that of said reference rate as determined by (g) hereof, calculate the quantum of the finance provider's rights to capital appreciation by returning (in) said first predetermined share multiplied by the result of said final collateral value less said initial collateral value, or (n) the same quantum determined in (in) hereof determined, at least in part, by reference to said first predetermined share; or (D) instructing said data processing apparatus to output a digitally encoded electronic signal representing the quantum required for the purposes of consummating said wholly or partially collateral dependent finance said quantum determined, at least in part, by reference to said first and second predetermined shares or any additional predetermined shares.

5. A method of determining a repayment amount or the amount of a wholly or partially collateral dependent finance provider's rights to the share of capital appreciation of a corresponding collateral asset securing the corresponding 143 )UV /A-AU-UV finance arrangement, said amounts being dependent on said collateral's state, said method comprising the steps of: (a) checking whether said collateral has been maintained in good repair or no worse condition than when said financial arrangement was entered into; and (b) determining either the value or sale price of said collateral asset had it been maintained in good repair or in no worse condition than when said financial arrangement was entered into, or the value increment required above said collateral asset value or sale price to bring it to the value or sale price of said collateral asset had it been maintained in good repair or in no worse condition than when said financial arrangement was entered into; (c) determining a repayment or appreciation right amount dependent on a maximum of the value or sale price of said collateral asset or the value or sale price of said collateral asset reflecting that which would have had been achieved had said collateral asset been either maintained in good repair or a condition no worse than when the financial arrangement was entered into; or (d) determining said repayment or appreciation right amount dependent on the value or sale price of said collateral asset plus said value increment required above said collateral asset value or sale price to bring it to the value or sale price of said collateral asset had it been maintained in good repair or in no worse condition than when said financial arrangement was entered into. Dated this 14th day of April 2009 ARES CAPITAL MANAGEMENT PTY LTD BY FRASER OLD & SOHN Patent Attorneys for the Applicant 144