AU2015213290A1 - Systems and methods for configuring an equity release product - Google Patents

Abstract

The present invention provides a system for configuring a real property equity release product, the system comprising: a computer, and computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product. In determining the risk-adjusted valuation of the property, the software may utilize one or more information types obtained from one or more information sources in direct or indirect communication with the computer. The one or more information sources are controlled by a party or parties different to the party or parties controlling the computer. COMPUTER COMPUTER TRANSMITTING TRANSMITTING BASE VALUATION LVR COMPUTER COMPUTER TRANSMITTING TRANSMITTING LOAN AMOUNT PRICE INDEX OUTPUT OUTPUT LOAN TERMS, RISK-ADJUSTED LOAN CONTRACT VALUATION

Description

SYSTEMS AND METHODS FOR CONFIGURING AN EQUITY RELEASE PRODUCT 2015213290 12 Aug 2015

FIELD OF THE INVENTION 5 0

The present invention is directed broadly to the field of financial services. More particularly, the invention is directed to computer-based systems and methods for facilitating the release of equity from a real property so as to provide income to the property owner.

BACKGROUND TO THE INVENTION

In the financial services arts, products known as “reverse mortgages” are known to be useful in providing income for real property owners. These products are in fact loan products having an applicable interest rate applied at a premium, and in some circumstances an interest 5 repayment obligation. In configuring a reverse mortgage the lender typically has regard to a number of parameters in configuring the loan and the interest charged such as the value of the subject property, the age of the owner, the life expectancy of the owner, value of the loan required, the ability or desire of the owner to make regular interest payments (if any), the amount of equity the owner wishes to retain in the property, required regular or lump-sum ’0 payments to the property owner, and the like.

The prior art provides many examples of computer-based systems and methods for configuring a reverse mortgage. For example, United States Patent 5,991,745 (to KIRITZ) describes systems for calculating monetary payments by a lender to a borrower based on the 25 value of a property asset using constants stored in look-up tables. The process includes inputting borrower information such as borrower birthdate or age. Property specific information is input, such as appraised property value. Equity share information is also input. With the Equity share information and borrower age, the process looks-up a tenure conversion factor from a look-up table. 30

As another example, United States Patent 6,012,047 (to MAZONAS and MATTOX) describes a data processing system for selectively determining an appropriate balance of credit parameters associated with the issuance of reverse equity mortgage financing. The system structures a concurrent loan product premium deferred annuity to provide future cash flows 35 starting at a system determined date corresponding to actuarially determined requirements of the borrower. The data processing system accepts inputs of the critical data required to 1 perform the calculations and provides a detailed assessment of the proper level of credit and blend of annuity payments for the borrower. 2015213290 12 Aug 2015

While reverse mortgages may be suitable for some older property owners having income from 5 investments, they are generally not suitable for the many so-called “equity rich/cash flow poor” property owners. These type of interest based equity release products are generally unattractive to the cash flow poor property owner given the potential of compounding interest if the owner fails to make payments. Failure to make payments increases the size of the debt over time and hence erodes equity retention value for the home owner. Conversely, periodic 0 interest payments may negatively impact the cash flows of older property owners, many of whom may already be under financial pressure. A more attractive equity release product would be configured to ensure a fixed equity retention value and provide for capital release without impacting a property owner’s cash flows, savings 5 or incomes. Furthermore, an attractive product would offer no default rollover provisions so that older owners may remain living in their homes for as long as they require. Interest rate-based loan products such as reverse mortgages by their very construct are simply incapable of providing such outcomes. ?0 It is an aspect of the present invention to overcome or ameliorate a problem of the prior art by providing computer-based systems and methods for configuring a property equity release product that provides for an improved outcome for the property owner and/or the product provider. In another aspect, the present invention provides a useful alternative to prior art systems and methods. 25

The discussion of documents, acts, materials, devices, articles and the like is included in this specification solely for the purpose of providing a context for the present invention. It is not suggested or represented that any or all of these matters formed part of the prior art base or were common general knowledge in the field relevant to the present invention as it existed 30 before the priority date of each claim of this application.

SUMMARY OF THE INVENTION 35 In a first aspect, but not necessarily the broadest aspect, the present invention provides a system for configuring a real property equity release product, the system comprising: a 2 computer, and computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product. 2015213290 12 Aug 2015

In one embodiment of the system, in providing the risk-adjusted valuation of the property, the 5 software utilizes one or more information types useful in quantifying a risk related to the property.

In one embodiment, the one or more information types is/are obtained from one or more information sources in direct or indirect communication with the computer. 10

In one embodiment, the one or more information sources are controlled by a party or parties different to the party or parties controlling the computer.

In one embodiment, the one or more information sources are remote to the computer. 15

In one embodiment, the one or more information types useful in quantifying a risk related to a real property is information useful in determining a risk that the property subject the equity release product (i) fails to achieve a predetermined increase in value over time or (ii) decreases in value over time. 20

In one embodiment, the one or more information types is relevant or potentially relevant in predicting future value of the property subject the equity release product.

In one embodiment, the information type(s) is/are selected from the group consisting of: a 25 property price index, property price indices over a period, location of property subject the equity release product, type of property subject the equity release product, dwelling (if any) size and/or characteristics of the property subject the equity release product, land size and/or characteristics of the property subject the equity release product, economic information, interest rate information, wages information, employment information, demographic 30 information, climate information, regulatory information, town planning information, compulsory acquisition information, legal information, title information, and covenant information.

In one embodiment, the system comprises the use of at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 35 information types to provide the risk-adjusted valuation 3

In one embodiment, the information sources are controlled by at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 different parties. 2015213290 12 Aug 2015

In one embodiment, the software is configured to determine a risk-adjusted valuation be 5 reference to (i) a base valuation and (ii) the one or more information types useful in quantifying a risk related to the property.

In one embodiment, the base valuation is determined at least in part by reference to information communicated to the computer from one or more information sources. 0

In one embodiment, the software is configured to determine a risk value from the information useful in quantifying a risk related to a real property, and then using the risk value to provide the risk-adjusted valuation. 5 In one embodiment, the real property is a residential property.

In one embodiment, the real property is not a commercial property.

In one embodiment, the real property comprises a land component and a building component.

In one embodiment, the system comprises a data validation computer in direct or indirect communication with the computer having computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product, the data validation computer being in direct or indirect communication with the one or more 25 information sources.

In one embodiment, the system comprises an information collation computer in direct or indirect communication with the computer having computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release 30 product, the information collation computer being in direct or indirect communication with the one or more information sources.

In one embodiment, the system comprises a computer of, or associated with, an annuity originating company in direct or indirect communication with the computer having computer-35 executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product. 4

In second aspect, the present invention provides a computer-implemented method for configuring a real property equity release product, the method comprising the steps of: providing or determining a base valuation of a real property, providing or determining a risk 5 value associated with the real property, and determining a risk-adjusted real property valuation by reference at least in part to the base valuation and the risk value. 2015213290 12 Aug 2015

In one embodiment of the method, the risk value is provided by, or determined by reference at least in part to one or more information types useful in quantifying a risk related to a real 0 property.

In one embodiment of the method, the one or more information types useful in quantifying a risk related to a real property is information useful in determining a risk that the property subject the equity release product (i) fails to achieve a predetermined increase in value over time or 5 (ii) decreases in value over time.

In one embodiment of the method, the one or more information types is relevant or potentially relevant in predicting future value of the property subject the equity release product. ?0 In one embodiment of the method, the information type(s) is/are selected from the group consisting of: a property price index, property price indices over a period, location of property subject the equity release product, type of property subject the equity release product, dwelling (if any) size and/or characteristics of the property subject the equity release product, land size and/or characteristics of the property subject the equity release product, economic 25 information, interest rate information, wages information, employment information, demographic information, climate information, regulatory information, town planning information, compulsory acquisition information, legal information, title information, and covenant information. 30 In one embodiment of the method, the information types useful in quantifying a risk related to a real property are obtained from at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 information sources.

In one embodiment of the method, the information sources are controlled by at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 different parties. 35

In one embodiment of the method, the real property is a residential property. 5

In one embodiment of the method, the real property is not a commercial property. 2015213290 12 Aug 2015

In one embodiment of the method, the real property comprises a land component and a 5 building component.

In a third aspect, the present invention provides computer-executable software configured to execute the method as described herein.

10 BRIEF DESCRIPTION OF THE DRAWINGS FIG. 1 is a block diagram of a computer system of a preferred form of the invention, showing the interrelationship between the system computer, and computers of external data providers. 15 FIG. 2 is a block diagram of a computer system of a preferred form of the invention, showing the interrelationship between the system computer, and computers of external data providers, and an information validation computer. FIG. 3 is a block diagram of a computer system of a preferred form of the invention, showing ?0 the interrelationship between the system computer, and computers of external data providers, and an information collation computer. FIG. 4 is a block diagram of a computer system of a preferred form of the invention, incorporating the use of look-up tables and showing the interrelationship between the 25 information in the look-up tables, and information stored in a remote valuation computer and the central processing unit of the system computer. FIG. 5 is a block diagram of a computer system of a preferred form of the invention, showing the interrelationship between the system computer, and computers of external data providers, 30 and an annuity originator computer. FIG. 6 is a diagram showing visually the concept of a risk adjusted equity value remaining fixed over the term of an equity release loan product configured according to the present invention. 35 FIG. 7 is a diagram showing how the system fixed ODV value (-5% pa) limits the negative gross growth return for the Lender in any year when annual growth falls below -5% pa. 6

DETAILED DESCRIPTION OF THE INVENTION 2015213290 12 Aug 2015

After considering this description it will be apparent to one skilled in the art how the invention is implemented in various alternative embodiments and alternative applications. However, 5 although various embodiments of the present invention will be described herein, it is understood that these embodiments are presented by way of example only, and not limitation. As such, this description of various alternative embodiments should not be construed to limit the scope or breadth of the present invention. Furthermore, statements of advantages or other aspects apply to specific exemplary embodiments, and not necessarily to all embodiments 0 covered by the claims.

Throughout the description and the claims of this specification the word “comprise” and variations of the word, such as “comprising” and “comprises” is not intended to exclude other additives, components, integers or steps. 5

Reference throughout this specification to “one embodiment” or “an embodiment” means that a particular feature, structure or characteristic described in connection with the embodiment is included in at least one embodiment of the present invention. Thus, appearances of the phrases “in one embodiment” or “in an embodiment” in various places throughout this 10 specification are not necessarily all referring to the same embodiment, but may.

The present invention is predicated at least in part on the finding that an improved or alternative equity release product is provided where a risk-adjusted valuation of the property subject of the equity release product is provided. Typically, the risk-adjusted valuation is 25 provided by computer-based means. Accordingly, in a first aspect the present invention provides a system for configuring a real property equity release product, the system comprising: a computer, and computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product. 30 The present systems provide for new methods of engineering a capital and investment construct that ameliorates one or more problems of the prior art.

In particular, the use of computer-based means comprising the use of a risk-adjusted valuation of the property subject of the equity release product allows the product to be configured to be 35 devoid of interest repayments (or with relatively low interest payments). Because the risk of negative growth, no growth, or low growth in a property is taken account of by the present methods, the equity release product provider may reasonably assume that any interest (of the 7 type normally payable on prior art reverse mortgage products) may be recouped when the property is eventually sold at a higher valuation. 2015213290 12 Aug 2015

Consideration of a property-associated risk (such as a risk that the property will not 5 substantially increase in value) allows for the product to be successfully applied to properties that are anticipated to experience growth in value (or at least not decrease in value, or decrease substantially in value) and allows for the product to be configured based on a contractual entitlement to future growth in a fixed equity value of the property. Thus, the product provider may provide the property owner with an assurance (for example, by way of 0 contract between the property owner and the product provider) of retaining a fixed equity portion in their property. This is of distinct advantage to the property owner, given the propensity for equity erosion in prior art reverse mortgage products as discussed in the Background section herein. Advantage is also provided to the product provider by being able to advance funds to the property owner with a lower risk of default given an anticipated growth 5 in value of the property subject the equity release product.

While in some circumstances, the present systems may identify properties with a risk of negative growth, no growth or low growth, such properties may nevertheless be subject of an equity release product. In such situations, interest may be charged and/or the fixed equity ?0 portion to future growth retained by the owner may be decreased.

The present systems allow for the generation of a new asset class of loan products which are configurable so as to provide one or more advantage to the borrower (typically the property owner) and the lender. It will be appreciated from the above that the loans which may be 25 configured by virtue of the present systems are a significant departure from existing reverse mortgage products, and indeed any other loan product which include regular interest payments set at market rate. Prior art loan products may only consider the risk that the borrower cannot repay the interest (and optionally also the principal). Thus, lenders traditionally consider matters such as income, savings, outgoings (such as living expenses, 30 credit card payments, school fees etc.) employment stability and the like when configuring a mortgage or reverse mortgage product. Where such considerations suggest a risk of the borrower defaulting, then the loan application may be declined, or higher levels or security required, or higher interest payments may be levied. The present systems may not have any regard whatsoever to the risk of a borrower being unable to repay principal or interest, and 35 instead relies on an assessment of the risk of the property not substantially increasing in the future. 8 A loan product having parameters configured according to the present systems may have a provision (typically in a loan contract) reciting one or more circumstances triggering redemption of the loan. Such circumstances may include death of the property owner, cessation of the owner using the property as a principal place of residence (for example, when 5 the owner is moved to an aged care facility, or sale of the property. 2015213290 12 Aug 2015

The invention is furthermore a significant departure from prior art reverse mortgage products that may result in equity erosion, where the owner may unexpectedly be left with low equity, zero equity or negative equity if interest repayments are not made. The present systems may 10 ignore the ability of a property owner to make payments, and instead concentrate on characteristics of the property indicative of a capacity for the property to increase in value, or to at least not appreciably lose value. In this way, a fixed equity value may be ascribed to the property thereby avoiding equity erosion. 5 It will be appreciated that the loan products that may be configured by use of the present systems are different to so-called “home safe”, “fractionalisation” and “home reversion” products, which are not loans but an ‘open contract’ of sale involving a fraction of equity in a property. 10 The present equity-based loan products that may be configured by use of the present systems are also different to so-called Popi contracts. These contracts are not loans but an option to sell a home at current price at some time in the future in return for fixed monthly payments (using home equity to deliver annuity income). Borrowers are unable to access lump sums as would normally be the case in a formal loan arrangement. 25

Particular advantage is provided where the funds provided by the equity-based loan products configured by the present systems are used (by the property holder) to purchase a product guaranteeing a fixed income for a defined period of time (typically known as annuity products, lifetime pension, or fixed-term pension). Annuity income may provide particular advantage to 30 elderly or retired property holders who require funds to cover basics such as food, utility bills, healthcare, domestic assistance and the like.

In this regard, a computer of the present system is, in some embodiments, in communication with a computer of, or associated with an annuity originating company. An associated 35 computer may be a computer of a deposit institution such as a bank from which the annuity originator may draw funds. Examples of annuity originators in Australia include CBA Commlnsure, Westpac Bankers Trust, AMP Life and Challenger. Typically, the 9 communication is configured so as to allow for the transfer of funds between the main system computer and a computer of a bank from which the annuity originator may draw funds. 2015213290 12 Aug 2015 5 In the prior art, the funding source for an annuity is typically drawn from a lump sum superannuation payment or free capital of the annuity buyer. Currently there exists a level of resistance amongst investment advisory service providers to income annuities because the funding source (super or free capital) essentially transfers the capital from the control of investment advisers to the annuity originators, thereby negatively impacting the income 10 generation potential of the advisers. Individuals who own a home but do not have the free capital (either via their superannuation or other funds) were generally unable to purchase an income annuity before the present invention. Prior art products such as interest based debt or equity release products are not used to fund annuities because it would be counter- productive to do so. Outlaying and taking on the cost of debt to purchase a fixed contract income stream 5 may be also considered a high risk strategy because interest rates may rise or the annuity buyer’s life circumstances may change.

Even where an individual is able to otherwise fund the purchase of an annuity, the present invention provides an alternative. 20

Loan products configured according to the present invention may be used to fund not only income annuities but a range of other annuity products such as in-homecare, education and elective surgery. An annuity originator or investor would invest funds into a Managed Investment Fund pro rata and gain entitlement to the deferred loan investment returns. The 25 Investment Manager would then return/transfer the funds to the annuity originator for investment purposes and to meet the income annuity obligations to the property owner. The balance of funds would be invested in the market to generate investment and fixed income returns for the annuity originator and the Managed Investment Fund as per agreement. 30 The present systems are advantageously implemented on a computer-based platform given the many and varied considerations required to properly assess a risk associated with a given property. Any identified risk may require further alteration of base loan parameters such as minimum loan to equity ratio, the fixed equity value agreed by the product provider, a repayment schedule, an interest rate etc. Computers are especially capable of executing the 35 algorithms (and in some embodiments, multiple algorithms) upon such considerations are based, and also storing and implementing data (such as in look-up tables) in implementing the present invention. 10

Computer-based platforms are further preferred because of the ability to interface with multiple computer-based information sources providing information useful in quantifying a risk associated with a property. As used herein, the term “risk” includes the risk of a property 5 decreasing in value, and the risk of a property not increasing in value. 2015213290 12 Aug 2015

As discussed more fully infra, multiple information types may be used by the system software to assess risk, and to therefore calculate the risk-adjusted valuation. For example, one useful information type is a property price index. Such indices are provided by specialist agencies 0 (such as the United States Federal Housing Agency, and the Australian Bureau of Statistics). The computers of such agencies may be in network communication with the computer of the present systems thereby allowing for the automated and repeated importation of information relevant to the assessment of risk and ongoing valuation of the loans. Multiple network connections may be made with multiple agencies to improve the number of information types 5 used by the system to determine risk. The information may be provided in real time to further increase the accuracy of the risk assessment.

Computer implementation is also important due to the need to transform data used to determine risk. Taking property price indices again as an example, raw prices may be ’0 analysed by the present computer to smooth seasonal variations or to remove other artefacts. Alternatively, multiple indices may be used and combined with each index being weighted according to importance, reliability or statistical significance.

The risk analysis algorithm embedded in the software of the present systems allow for the 25 calculation of a risk-adjusted valuation. The algorithm may output a risk adjustment value, which is typically in numerical form. In one embodiment, the risk adjustment value is a multiplier which is applied to a base valuation. The multiplier may be expressed as number, a fraction or as percentage and may be positive or negative. For example, the base valuation of the property may be $600,000.00 and the risk adjustment value is +10%. In that 30 circumstance, the risk adjusted valuation is $660,000.00. As another example, the base valuation of the property may be $600,000.00 and the risk adjustment value is 0.9. In that circumstance, the risk adjusted valuation is $540,000.00.

In the former example, by assessing risk the product provider is informed of a likely increase 35 in value of the property over the term of the loan agreement with the property owner. In such circumstances, the equity release product may be configured so as to require no interest repayments or low interest repayments, or to assure the owner of a relatively high fixed equity 11 value. Of course, a product configured in this way is attractive to an owner and he/she is more likely to enter into a loan agreement with the product provider. 2015213290 12 Aug 2015

In the latter example, the product provider is informed of a likely decrease in value in the 5 property over the proposed loan term, and the loan product is therefore configured so as to include an interest payment and also a lower fixed equity value. Even in this circumstance, the loan terms may be preferable for the property owner when compared with a reverse mortgage product which levies a premium interest charge to the market rate, and may result in significant equity erosion. 0

In assessing risk, the algorithms of the system software utilize information types which are useful in predicting the risk that the property subject the equity release product (i) fails to achieve a predetermined increase in value over time or (ii) decreases in value over time. As discussed above, a property price index may be a useful information type, especially where 5 price trends may be established. In a simple example, where a price history for homes in geographical area shows an average price increase of 4% per year, and the loan term is agreed at 5 years (at which time the property is sold) then risk adjustment value of 20% is calculated. 20 It is likely that more complex considerations will be required to more fully inform the provider of the risk of any given property. For example, general economic data may inform of increased rates of unemployment for the city in which the property is located due to closure of an automotive building plant, which in turn lowers the expectation of property price increases in the next 5 years. In that case the risk adjustment value of 20% may be revised downwardly 25 by the software algorithm to 15%. However, the property is in a price bracket that is generally not achievable by factory workers and so the algorithm revises the risk adjustment value upwardly from 15% to 18%. It will be appreciated from the foregoing that an algorithm of the software may be very complex, relying on multiple information types with each information type potentially interacting with other information types so as to form a more complete risk 30 analysis.

Another potentially useful information type relates to the location of the property; for example, state, region, city, suburb, locale, proximity to a school due for construction during the loan term, proximity to an industrial complex due for removal during the loan term etc. 35

Another potentially useful information type relates to type of property subject the equity release product, dwelling (if any) size and/or characteristics of the property subject the equity release 12 product, land size and/or characteristics of the property subject the equity release product. Properties having small dwellings on restricted land may tend to exhibit only modest price increases compared with those having room for expansion. 2015213290 12 Aug 2015 5 Another useful information type relates to general economic information, such as gross domestic product information, balance of trade information, consumer confidence survey information, consumer price index information, retail sales, inflation, taxation rates and the like. 0 Another useful information type relates to interest rate information. A prediction of increased interest rates is likely to dampen housing prices.

Another useful information type relates to wages information. A prediction in increased wages growth may cause an upward revision of the risk adjustment value. 15

Another useful information type relates to employment information given that increased employment opportunities tend to stimulate housing prices.

Another useful information type relates to demographic information. A predicted increase in 10 population without building of a sufficient number of new dwellings tends to increase housing demand and therefore prices.

Another useful information type relates to climate information. For example, a prediction that a low lying property might succumb to a rising sea levels due to climate change would tend to 25 lower any expectation of a price increase, and may indicate a sharp decrease.

Another useful information type relates to town planning information. For example, where a property in a light industrial zone, and a local government authority is expected to rezone to a residential zone it would predicted that the price of the property would increase to an extent 30 greater than would otherwise be predicted.

Another useful information type relates to compulsory acquisition information. Some properties are subject to an acquisition overlay, for example where the property may be required for road widening. As traffic congestion increases over time, the prospect of the 35 property being compulsorily acquired will increases and thereby dampen any general increases in value in the same general area. 13

Another useful information type relates to legal information. For example, the property may be the subject of a caveat lodged by a creditor of the owner. The caveat will affect the ability of the owner to sell at the time agreed to by the owner and the product provider. 2015213290 12 Aug 2015 5 Another useful information type relates to title information. For example, the property title may show an easement over part of the land meaning that a dwelling could not be extended over the easement. The easement may affect the ability of the property to increase in value in line with other similar properties in the area given the lowered potential for improving the existing dwelling. 0

Another useful information type relates to covenant information. For example, where a covenant over properties in an area prevents inappropriate development, it may be expected that greater price rises could result as compared with similar properties in an area where development is unrestricted. 15

The aforementioned types are provided merely as exemplary in nature. Given the benefit of the present specification, the skilled person is capable of routinely conceiving of other information types suitable in determining a risk adjustment value for use in the present invention. All such information types are included in the scope of the present invention.

JO

The present system may be configured so as to calculate a risk-adjusted valuation. Typically, a base valuation is used as a starting point. The base valuation is generally a present valuation based on factor(s) well known to the skilled person. Factors such as location, land 25 size, number of rooms, quality of dwelling construction, availability of off-street car parking, streetscape, proximity to public transport and other general amenity considerations are typically included in determining the base valuation. In one embodiment, the base valuation is a certified or sworn valuation provided by a third party. Alternatively, the valuation may be provided by a realtor (real estate agent), or even by the product provider. 30

The system software may be configured so as to receive and store the base valuation in the computer, and apply the risk adjustment value so as to provide a risk-adjusted valuation.

In the present systems, the computer may comprise network interface means configured to 35 interface with computer(s) administered by information source(s) used by the system in assessing the risk associated with the property subject of the equity release product. The network interface means typically routes data into and out of the system computer. For 14 example, the network interface may transmit a request to an information source computer to provide information on a given property, receive the requested information and then route that information to the system computer CPU (or a memory register accessible by the CPU) to allow for quantification of a risk adjustment value. 2015213290 12 Aug 2015 5

The network interface means may furthermore interface with computer(s) administered by information source(s) used by the system in assessing the base valuation of the property subject the equity release product. The CPU then utilizes the risk adjustment value to mathematically transform the base valuation to provide a risk-adjusted value of the property. 10 Thus, a working interaction exists between information source computers and the system computer, and furthermore there is a transformation of data carried out by the system computer CPU in order to provide a useful outcome being the risk-adjusted value.

In another aspect, there is provided by the present invention a computer-implemented method 5 for configuring a real property equity release product, the method comprising the steps of: providing or determining a base valuation of a real property, providing or determining a risk value associated with the real property, and determining a risk-adjusted real property valuation by reference at least in part to the base valuation and the risk value. 10 The methods and systems described herein may be deployed in part or in whole through a computer that executes computer software, program codes, and/or instructions on a processor. The processor may be part of a server, client, network infrastructure, mobile computing platform, stationary computing platform, or other computing platform. A processor may be any kind of computational or processing device capable of executing program 25 instructions, codes, binary instructions and the like. The processor may be or may include a signal processor, digital processor, embedded processor, microprocessor or any variant such as a coprocessor (math co-processor, graphic co-processor, communication co-processor and the like) and the like that may directly or indirectly facilitate execution of program code or program instructions stored thereon. In addition, the processor may enable execution of 30 multiple programs, threads, and codes.

The threads may be executed simultaneously to enhance the performance of the processor and to facilitate simultaneous operations of the application. By way of implementation, methods, program codes, program instructions and the like described herein may be 35 implemented in one or more thread. The thread may spawn other threads that may have assigned priorities associated with them; the processor may execute these threads based on priority or any other order based on instructions provided in the program code. The processor 15 may include memory that stores methods, codes, instructions and programs as described herein and elsewhere. 2015213290 12 Aug 2015

The processor may access a storage medium through an interface that may store methods, 5 codes, and instructions as described herein and elsewhere. The storage medium associated with the processor for storing methods, programs, codes, program instructions or other type of instructions capable of being executed by the computing or processing device may include but may not be limited to one or more of a CD-ROM, DVD, memory, hard disk, flash drive, RAM, ROM, cache and the like. 10 A processor may include one or more cores that may enhance speed and performance of a multiprocessor. In embodiments, the process may be a dual core processor, quad core processors, other chip-level multiprocessor and the like that combine two or more independent cores (called a die). 5

The methods and systems described herein may be deployed in part or in whole through a computer that executes computer software on a server, client, firewall, gateway, hub, router, or other such computer and/or networking hardware. The software program may be associated with a server that may include a file server, print server, domain server, internet ?0 server, intranet server and other variants such as secondary server, host server, distributed server and the like. The server may include one or more of memories, processors, computer readable media, storage media, ports (physical and virtual), communication devices, and interfaces capable of accessing other servers, clients, computers, and devices through a wired or a wireless medium, and the like. The methods, programs or codes as described herein and 25 elsewhere may be executed by the server. In addition, other devices required for execution of methods as described in this application may be considered as a part of the infrastructure associated with the server.

The server may provide an interface to other devices including, without limitation, clients, other 30 servers, printers, database servers, print servers, file servers, communication servers, distributed servers and the like. Additionally, this coupling and/or connection may facilitate remote execution of program across the network. The networking of some or all of these devices may facilitate parallel processing of a program or method at one or more location without deviating from the scope of the invention. In addition, any of the devices attached to 35 the server through an interface may include at least one storage medium capable of storing methods, programs, code and/or instructions. A central repository may provide program 16 instructions to be executed on different devices. In this implementation, the remote repository may act as a storage medium for program code, instructions, and programs. 2015213290 12 Aug 2015

The software program may be associated with a client that may include a file client, print client, 5 domain client, internet client, intranet client and other variants such as secondary client, host client, distributed client and the like. The client may include one or more of memories, processors, computer readable media, storage media, ports (physical and virtual), communication devices, and interfaces capable of accessing other clients, servers, computers, and devices through a wired or a wireless medium, and the like. The methods, 0 programs or codes as described herein and elsewhere may be executed by the client. In addition, other devices required for execution of methods as described in this application may be considered as a part of the infrastructure associated with the client.

The client may provide an interface to other devices including, without limitation, servers, other 5 clients, printers, database servers, print servers, file servers, communication servers, distributed servers and the like. Additionally, this coupling and/or connection may facilitate remote execution of program across the network. The networking of some or all of these devices may facilitate parallel processing of a program or method at one or more location without deviating from the scope of the invention. In addition, any of the devices attached to 20 the client through an interface may include at least one storage medium capable of storing methods, programs, applications, code and/or instructions. A central repository may provide program instructions to be executed on different devices. In this implementation, the remote repository may act as a storage medium for program code, instructions, and programs. 25 The methods and systems described herein may be deployed in part or in whole through network infrastructures. The network infrastructure may include elements such as computing devices, servers, routers, hubs, firewalls, clients, personal computers, communication devices, routing devices and other active and passive devices, modules and/or components as known in the art. The computing and/or non-computing device(s) associated with the 30 network infrastructure may include, apart from other components, a storage medium such as flash memory, buffer, stack, RAM, ROM and the like. The processes, methods, program codes, instructions described herein and elsewhere may be executed by one or more of the network infrastructural elements. 35 The methods, program codes, and instructions described herein and elsewhere may be implemented on a cellular network having multiple cells. The cellular network may either be frequency division multiple access (FDMA) network or code division multiple access (CDMA) 17 network. The cellular network may include mobile devices, cell sites, base stations, repeaters, antennas, towers, and the like. The cell network may be a GSM, GPRS, 3G, EVDO, mesh, or other networks types. 2015213290 12 Aug 2015 5 The methods, programs codes, and instructions described herein and elsewhere may be implemented on or through mobile devices. The mobile devices may include navigation devices, cell phones, mobile phones, mobile personal digital assistants, laptops, palmtops, netbooks, pagers, electronic books readers, music players and the like. These devices may include, apart from other components, a storage medium such as a flash memory, buffer, 0 RAM, ROM and one or more computing devices. The computing devices associated with mobile devices may be enabled to execute program codes, methods, and instructions stored thereon.

Alternatively, the mobile devices may be configured to execute instructions in collaboration 5 with other devices. The mobile devices may communicate with base stations interfaced with servers and configured to execute program codes. The mobile devices may communicate on a peer to peer network, mesh network, or other communications network. The program code may be stored on the storage medium associated with the server and executed by a computing device embedded within the server. The base station may include a computing device and a 20 storage medium. The storage device may store program codes and instructions executed by the computing devices associated with the base station.

The computer software, program codes, and/or instructions may be stored and/or accessed on computer readable media that may include: computer components, devices, and recording 25 media that retain digital data used for computing for some interval of time; semiconductor storage known as random access memory (RAM); mass storage typically for more permanent storage, such as optical discs, forms of magnetic storage like hard disks, tapes, drums, cards and other types; processor registers, cache memory, volatile memory, non-volatile memory; optical storage such as CD, DVD; removable media such as flash memory (e.g. USB sticks or 30 keys), floppy disks, magnetic tape, paper tape, punch cards, standalone RAM disks. Zip drives, removable mass storage, off-line, and the like; other computer memory such as dynamic memory, static memory, read/write storage, mutable storage, read only, random access, sequential access, location addressable, file addressable, content addressable, network attached storage, storage area network, bar codes, magnetic ink, and the like. 35 18

The methods and systems described herein may transform physical and/or or intangible items from one state to another. The methods and systems described herein may also transform data representing physical and/or intangible items from one state to another. 2015213290 12 Aug 2015 5 The elements described and depicted herein, including in flow charts and block diagrams throughout the figures, imply logical boundaries between the elements. However, according to software or hardware engineering practices, the depicted elements and the functions thereof may be implemented on computers through computer executable media having a processor capable of executing program instructions stored thereon as a monolithic software 0 structure, as standalone software modules, or as modules that employ external routines, code, services, and so forth, or any combination of these, and all such implementations may be within the scope of the present disclosure. Examples of such computers may include, but may not be limited to, personal digital assistants, laptops, personal computers, mobile phones, other handheld computing devices, wired or wireless communication devices, transducers, 5 chips, calculators, satellites, tablet PCs, electronic books, gadgets, electronic devices, devices having artificial intelligence, computing devices, networking equipment, servers, routers and the like.

Furthermore, the elements depicted in the flow chart and block diagrams or any other logical 10 component may be implemented on a machine capable of executing program instructions. Thus, while the foregoing drawings and descriptions set forth functional aspects of the disclosed systems, no particular arrangement of software for implementing these functional aspects should be inferred from these descriptions unless explicitly stated or otherwise clear from the context. Similarly, it will be appreciated that the various steps identified and described 25 above may be varied, and that the order of steps may be adapted to particular applications of the techniques disclosed herein. All such variations and modifications are intended to fall within the scope of this disclosure. As such, the depiction and/or description of an order for various steps should not be understood to require a particular order of execution for those steps, unless required by a particular application, or explicitly stated or otherwise clear from 30 the context.

The methods and/or processes described above, and steps thereof, may be realized in hardware, software or any combination of hardware and software suitable for a particular application. The hardware may include a general purpose computer and/or dedicated 35 computing device or specific computing device or particular aspect or component of a specific computing device. The processes may be realized in one or more microprocessors, microcontrollers, embedded microcontrollers, programmable digital signal processors or other 19 programmable device, along with internal and/or external memory. The processes may also, or instead, be embodied in an application specific integrated circuit, a programmable gate array, programmable array logic, or any other device or combination of devices that may be configured to process electronic signals. It will further be appreciated that one or more of the 5 processes may be realized as a computer executable code capable of being executed on a computer readable medium. 2015213290 12 Aug 2015

The computer executable code may be created using a structured programming language such as C, an object oriented programming language such as C++, or any other high-level or 10 low-level programming language (including assembly languages, hardware description languages, and database programming languages and technologies) that may be stored, compiled or interpreted to run on one of the above devices, as well as heterogeneous combinations of processors, processor architectures, or combinations of different hardware and software, or any other machine capable of executing program instructions. 15

Thus, in one aspect, each method described above and combinations thereof may be embodied in computer executable code that, when executing on one or more computing devices, performs the steps thereof. In another aspect, the methods may be embodied in systems that perform the steps thereof, and may be distributed across devices in a number of ’0 ways, or all of the functionality may be integrated into a dedicated, standalone device or other hardware. In another aspect, the means for performing the steps associated with the processes described above may include any of the hardware and/or software described above. All such permutations and combinations are intended to fall within the scope of the present disclosure. 25

While the invention has been disclosed in connection with the preferred embodiments shown and described in detail, various modifications and improvements thereon will become readily apparent to those skilled in the art. 30 Accordingly, the spirit and scope of the present invention is not to be limited by the foregoing examples, but is to be understood in the broadest sense allowable by law.

The present invention will now be more fully described by reference to the following nonlimiting preferred embodiment. 35 20

DETAILED DESCRIPTION OF A PREFERRED EMBODIMENT OF THE INVENTION 2015213290 12 Aug 2015

In this preferred embodiment, there is provided a system comprising computer software having a set of algorithmic based metrics that produce specific output. The algorithmic output allows 5 for the configuration of a loan product based on equity release from a real property. The metrics in the equity release product may be configured to produce different outcomes and loan types for a variety of purposes.

Reference is made to FIG.1 which shows a preferred computer network, having a central I0 system computer 10 administered by the equity release capital provider. Networked to the central computer 10 are computers 12,14,16 and 18 each administered by various third party information providers. Network connections are provided by network interfaces 20, with information transmitted as per the arrows. Computer 12 is administered by a property valuation business and transmits a sworn valuation to central computer 10. Computer 14 is 15 administered by a loan distributor, financial organisation or agent and transmits a loan to valuation ratio to central computer 10. Computer 14 is administered by a loan processor, financial organisation or agent and transmits a loan to valuation ratio, loan amount, and other loan or security related details to central computer 10. Computer 16 is administered by a property data aggregator and transmits property data and information, historical or otherwise ’0 related to the risk evaluation process of the loan transaction to central computer 10. Computer 18 is administered by a company providing housing price index information and transmits a house price index to central computer 10. It will be understood that the central computer 10 operates to process a plurality of properties, each of which is owned by an individual seeking approval for an equity release loan. Thus, information transmitted by computers 12, 14, 16 25 and 18 alters according to the property subject of the equity release loan application.

The central computer 10 comprises system data tables and software having algorithms capable of utilizing the outputs of computers 12, 14, 16 and 18 to provide a risk adjusted property valuation. Other outputs of central computer 10 include loan terms (such as term, 30 any repayments, any other conditions), and an electronically generated contract.

Typically, the central computer requests a sworn valuation from computer 12. The valuation has been determined by a qualified valuation officer who has previously visited the property and entered the valuation into a database held by computer 12. 35

Where the risk adjusted valuation is significantly higher than the present sworn valuation the algorithm defines the loan application as an acceptable risk. 21

Where loan funds are used to pay the owner an annuity, the system is typically configured so as to electronically transfer funds to an annuity originator (generally via the computer of the originator’s bank). Typically software-based means is used to calculate the value of payments 5 providing a fixed income stream for the property owner. For example, the interest component on the progressive balance of funds may be held on deposit for distribution of annuity payments processed as a fixed income component. The annuity originators computer (and optionally the originator’s bank computer) may be a part of the present systems by way data connection with the central computer 10 either directly or indirectly. 2015213290 12 Aug 2015 0

Referring to FIG. 2 there is shown an embodiment whereby the information from the information sources is routed to the central computer 10 both directly and via an intermediate computer 20. The role of the intermediate computer 20 is to provide a second, stored version of the information that may be used to cross-check the information routed directly to the 5 computer 10. This arrangement provides a stored record of the information (and separate to the information received by the computer 10) that can be used to validate the information used in computer 10 to make any of the calculations required to configure a loan product. For example, after configuration of a loan product the system software may retrieve the stored version of the information to check for strict concordance. 20

Referring to FIG. 3 there is shown an embodiment whereby the information from the information sources is routed to the central computer via an intermediate computer 22 only. The role of the intermediate computer 22 is to collate information in a database form. The information may be ordered, filtered, or transformed for example by way of software of the 25 intermediate computer 22. When required by the system computer 10, information is retrieved from the intermediate computer 22 for use in the various calculations required.

Referring now to FIG. 4 there is shown an embodiment utilizing look-up tables 100, 200,300, 400, 500 in storage 600 on the system computer 700. In addition, a property valuation 30 computer 800 is in network connection with the system computer 700 to provide at least some of the information needed. Numerical information extracted from the look-up table 100, and also numerical information transmitted by the property valuation computer 800 is processed by the central processing unit 900 of the system computer 700. 35 The property subject the equity release product is in the suburb of Sunnyvale and so look-up table 100 is utilized. The table 100 shows that average gain per year in property price is +3% with this being added to the risk value. There is a new school due for completion near the 22 subject property in the next +2 years, and so the adjustment of 1% to reflect an increase in amenity is added. There is no amenity decrease forecast for the area near the property. The city in which Sunnyvale exists has an unemployment rate of 7%, which adds a -7% adjustment factor to reflect the possibility of slower property growth than that seen historically. Finally, 5 the dwelling is brick and so +2% adjustment factor is added given the greater likelihood that the structure will retain its appearance and structural integrity in the future. The addition of adjustment factors are added by the central processing unit 900 to result in the risk value. 2015213290 12 Aug 2015

To obtain the risk-adjusted valuation, a base valuation is requested by the system computer 0 700 from the property valuation computer. To this base value, the risk value is applied so as to provide the risk-adjusted value for the property subject the equity release loan.

To effect the above, the system software directs selection of look-up table 100, addition of adjustment factors, retrieval of base valuation from property valuation computer 800, and 5 calculation of risk-adjusted property value.

It will be understood that embodiments of the system utilizing look up tables may be complete devoid of any network connect. A single computer may be utilized with the information from the information sources being collated on another computer, the collated information being 10 stored on a storage medium, and the storage medium connected to the single computer which then imports the collated information. Considering the system of Figure 4, the property valuation computer may be removed, and the property value manually inputted into the single computer. 25 Referring to FIG. 5 there is shown a system including a bank computer 24 from which an annuity originator company may draw funds. The arrow between the central computer 10 and bank computer 24 illustrates the electronic transfer of funds obtained by way of a loan product configured by the computer 10. Alternatively, the computer 10 may instructed a further computer to effect the electronic funds transfer to computer 24. 30

The system may be configured (for example by way of software-based algorithms) so as to provide any one or more of the following specific outcomes: equity retention value fixed in contract (refer to the FEV and RPV herein), fixed theoretical deferred interest rate return amortised throughout loan period (refer to the IRV herein), no default provision, rollover 35 provision (for older property owners > 60 years), little or no impact on cash flow, savings and incomes of property owner, downside risk protection for lenders/investors with property owner indemnity (refer to the ODV herein), Separation of Charges for a low interest equity release 23 loan in conjunction with FEV eliminates equity erosion in contract for property owners (refer to the SOC herein), superior residential mortgage backed return on investment for lenders modelled to outperform official (such as provided by the Australian Bureau of Statistics) annualised gross house price growth between 20% and 100% plus pa. It will be appreciated 5 that all embodiments of the invention are not necessarily capable of achieving one of, some of, most of, or all of any of the practical advantages described herein. 2015213290 12 Aug 2015

An outcome of the present systems and methods may be an equity release product. The product may be information stored in computer readable medium (such as information relating 0 to a risk-adjusted property valuation, product terms and conditions, scheduling of payments to the property owner, scheduling of payments to the product provider, details of any security held etc). Information on the product may be produced in hard copy form for review and execution by the product provider and/or the property owner, including a physical contract reciting any of the information. 5

The equity release product may comprise algorithmic based metrics and functions configured to deliver specific outcomes (such as loan products) that meet the capital and investment requirements of lenders, investors and property owners. 20 The algorithmic based metrics and functions may be integrated into an equity release product to produce specific outcomes resulting in the creation of customised equity based new generation loans. The metrics, functions and relevant algorithmic calculations are summarised below-: 25 A. Fixed Equity Value (FEV) - this metric enables the establishment of the risk rated fixed equity value (risk adjusted FEV) in contract. This is a process of risk adjusting the valuation. The FEV is the amount of equity in which future growth is assigned to the investor or lender in contract. It is initially established by expressing the loan amount as a percentage of the certified value of the property prior to execution of a contract. The FEV is risk rated by adding 30 a Risk Premium Value (RPV) to create a contractually adjusted FEV (FEV adj) value that remains fixed throughout a loan contract period. The FEV adj ameliorates the problem of equity erosion in contract that is apparent in prior art, for example interest based equity release products such as reverse mortgages. The FEV adj metric completely eliminates the legal issue surrounding ’no negative equity guarantees’ which has now been legislated, effectively 35 meaning that a property owner may still potentially lose all the equity in their home as a result of compounding interest through an interest based equity release loan product but cannot owe any more than the value of the property. 24 FIG. 6 illustrates how the contractual FEV adj remains constant during an equity based loan over a 15 year contract period subject the equity release product invention. 2015213290 12 Aug 2015 5 The FEV is defined as the loan value expressed as a percentage of the certified value of the property or home. The algorithm used to establish the FEV is-: FEV = (Loan Amount / CCV1) x 100 where CCV1 = current certified value of the property. 0 A transaction is risk rated by adjusting the FEV by applying (such as adding) a Risk Premium Value (RPV) that creates the FEV risk adjusted value (FEVadj). The RPV value may be formulated by use of a look up table that lists key risk variables relating to a loan. The FEV adj 5 value remains fixed throughout a loan contract and addresses the primary issue of equity erosion or creep in prior art equity release products. The algorithm used to establish the adjusted FEV is :

FEVadj = FEV + RPV 20 where 0% < RPV < +100%

With regard to Fixed Equity Value (FEV) and Risk Premium Value (RPV), the prior art fails to provide interest based equity release products that fix the equity value (or an owner equity 25 retention value) in contract. In some prior art products, it is not possible for borrowers to avoid paying periodical interest payments. They would not pay periodical payments to avoid impacting their cash flows, savings and incomes. Equity release products have only one way to value capital, i.e. by charging an interest rate. Therefore, any unpaid interest is capitalised into the principal amount resulting in a compound effect that may rapidly increase the debt 30 amount owed. During high interest regimes, the loan amount may grow in a short time to such a degree that equity in the home for the owner is eroded to zero or negative.

Use of a Fixed Equity Value (FEV) provides a new approach in light of the prior art. The loan amount is expressed as a percentage of the certified value of the property asset and this 35 percentage amount (FEV) is risk adjusted by adding a Risk Premium Value to the FEV, creating a risk adjusted FEV adj value. The FEVadj is fixed in both a low (cash rate) or interest free loan product at the beginning of a contract. In the case of a low interest loan product loan, 25 a ‘Separation of Charge’ (SOC) function provides separate principal and interest sub accounts. This provides another means of ameliorating the capitalising of interest resulting in equity erosion. The principal amount never changes, it remains fixed throughout a contract period. If the borrower decides not to make interest payments, the SOC function eliminates the impact 5 of compounding interest on interest and principal by separating the interest charges from the fixed principal amount. This means that interest (and any annual penalties for non payment) are aggregated together in a separate account. At redemption date, the principal amount and the aggregated interest/penalties are paid to the Lender. This process preserves the owner’s equity retention value in a loan contract. The SOC function works well for the present construct 10 because the loans are not reliant on interest charges alone to generate a return on capital. The return on capital in the present products is linked to multiple growth drivers including the IRV, annual market growth and loan book variants such as loan aggregation and early redemptions. The fixed FEV risk adjusted value in contract differentiates the financial construct from all prior art. 2015213290 12 Aug 2015 15

The present product may fix owner equity retention entitlements at the start of contract and will not impact the cash flow, savings or income of the borrower. This means that the loan is a no default loan that is supported by a construct that integrates rollover provisions for the borrower and downside risk protection for the Lender. This is made possible at least in part by ?0 the integration of any one or more of the FEV, RPV, ICV, SOC, ROP and ODV metrics and functions into the equity release product that is configurable by the present invention. B. Risk Premium Value (RPV) is a variable expressed as a percentage value (%) that is added to the FEV to create the adjusted FEV adj. RPV values may be sourced from a 25 customized look up table that contains the risk value of each contributing risk variable or other risk evaluation methodologies or it may be calculated from an algorithm integrating a 35 system fixed IRV value (see below in the section ‘Description and example of an exemplary standardised system risk rating process’). The RPV applied to the FEV may range from 0 and +25 percentage points depending on the risk profile, and variables determined for each 30 transaction and specifically addresses the risk carry of the lender in each transaction.

The adjusted FEV remains fixed throughout the contract period and is critical in establishing the Integrated Risk Value (IRV) that provides a theoretical deferred fixed income (interest rate) return that is amortised out over the contract period and crystallised when a loan is redeemed. 35 See below.

1. RPV = FEVadj - FEV 26 2015213290 12 Aug 2015 25 30 35 2. RPV = ridRV x Loan Amount /100) + Loan Amount) x 1001 - FEV 5 CCV1

The RPV is applied to FEV to risk rate each transaction and establish the FEVadj value. 0 C. Integrated Risk Value (IRV) - each loan is risk rated by adding a value called the ‘Risk Premium Value’ to the FEV value creating an adjusted Fixed Equity Value (FEV adj) that remains fixed throughout the contract period. The FEV adj value when multiplied with the current certified value of the underlying property (CCV1) at the beginning of the loan contract creates a Total Capital Value (TCV) using the following formula-: 5 3. TCV = FEV adj x CCV1

The IRV is expressed as a percentage value by using the associated formulas-: X) 4. IRV = (TCV - Principal loan) X100

Principal loan 5. IRV = ffFEVadi x CCV1) - Principal loan! X100 Principal loan

The IRV is amortised out over the loan contract period and forms a part of the investment return along with market growth of the underlying property asset. The FEV adj value is configured to deliver a programmed upfront IRV value in every loan transaction equal to approximately 45% but this value may be variable where 0% < IRV < 100%. The programmed IRV is amortised out over the 15 year loan period (although the loan could be of any period) to create an annualised IRV value of approximately 3% pa calculated as follows-:

Amortised IRV = 45%/15 = 3% pa where IRV = 45% and loan period = 15 years 27

The IRV delivers an upfront risk capital value that when amortised is equivalent to an annual theoretical deferred interest rate. The amortised IRV will increase if a loan is redeemed earlier. In early redemptions (say, after year 7), the amortised annualised IRV will be higher because of the shortening of the contract period. 2015213290 12 Aug 2015 5

To illustrate, if loan redemption occurred after year 7 of a 15 year loan term, the annualised IRV would be equal to 45/7= 6.5% pa as compared to the programmed amortised value of 3% pa (45/15 =3% pa) for the full loan period of 15 years. This would result in an adjustment to the IRV contribution to the total investment return of each individual loan and the loan book. I0 The IRV programmed values for a 15 year loan period shall vary for the loan types originated as illustrated below:

No interest - IRV = 45% plus (amortised theoretical 3% pa)

Low interest - IRV = 35% plus (amortised theoretical 2.33% pa) I5 Where the IRV range may vary: 0% < IRV <100%

IRV» rftFEV+RFVi / 100f x CCVtl - Loan amount x 1QO

Loan 20 D. Override Default Value (ODV) is the function that provides downside investment protection for the lender in a capital transaction.

Fixed data ODV insertion range -5% < ODV < +2.5% 25

In a loan outcome created from the present equity release product, a property owner in contract may indemnify the lender to any fall in the official market growth rate in any year where that growth rate fell below a benchmark, fixed percentage value in the loan contract 30 equal to n % pa where the value of ‘n’ varies subject to the following range-: n = ODV and - 5% < n < +2.5%

Hence, Lender downside risk in contract may be varied subject insertion data in this range. 35

The property owner may pay the Lender’s growth entitlement in the loan at redemption date based on the default override value of n% pa that for any year when official house price growth 28 falls below n% pa. Hence, if n = - 3% pa, the Lender would be indemnified for the official registered negative growth value (%) less than - 3% in that year. The ODV value network set at -3% would in this example offset the amortised IRV that delivers a theoretical deferred fixed income return per annum of +3% for the lender/investor in a loan contract. 2015213290 12 Aug 2015 5

Hence, the ODV ensures a minimum return value for the Lender in each loan contract. The ODV will normally be fixed at -3% which if triggered in any year, would be offset by the fixed theoretical return of the amortised IRV value which is modelled for interest free loans at +3% pa. This means that the worst case scenario or minimum gross annual growth return for a 0 lender in any year is -3% pa or nett 0% pa after the amortised IRV value is used as an offset against the fixed ODV.

The ODV metric uniquely underwrites the nett downside risk for a lender if used in an equity-based loan contract at 0% pa nett without any restriction to upside growth. This implies that 5 the lender investment proposition in an equity-based loan contract in respect to potential downside i.e. major market correction is fully underwritten by the inclusion of the ODV metric and the indemnity in contract provided by the property owner.

Further consideration for the ODV metric inclusion resides in the fact that a property owner in ?0 an equity-based loan contract is only exposed to the economic performance of a single property asset (their home) while a lender assumes the downside risk for a diversified loan book of equity based loans. Integration of the ODV metric ameliorates a significant barrier to funding support and participation in equity based growth loans by delivering downside protection in conjunction with the other metrics that are defined in the equity release product 25 subject the invention.

Reference is made to FIG. 7 which is a schematic showing how the lender is protected by the Override Default Value which in this example is fixed at -5% per annum in the equity release 30 product. While the market TNG has fallen in a year by -10%, the property owner provides indemnity to the Lender that restricts lender exposure to a fall of -5% (Total Negative Growth = TNG; Override Default Value = ODV = - 5%)

Given the risk averse LVRs applied to the loan construct (LVR< 50%) and the 'non default’ 35 and rollover functions for low or no interest loan contracts created from the equity release product and provided to property owners, borrowers will not be financially impacted by a major downturn of property prices in respect to payment defaults and/or their loan commitments. 29

Generally, borrowers will be at least partially protected, and may recover their capital position that historically over time has always recovered to rise above the historical residential property growth trend line. Another consideration is the premium quality requirement of residential 5 assets used as security in an equity-based loan contract and therefore, this type of property asset historically tends to be more resilient to market downturns as a result of normal supply/demand metrics evident in and across the residential property market. Under normal loan conditions, the risk carry in an equity-based loan contract would be significantly weighted toward the Lender. Providing low or no interest capital based on growth performance may 0 ameliorate all risk in the transaction for the property owner. 2015213290 12 Aug 2015

Therefore, it may be required that a property owner in the loan transaction contributes to underwriting downside risk protection for lenders given the exposure of the Lender to a national, diversified equity based loan book secured by underlying property assets. By 5 protecting the downside for lenders with no constraint to upside growth effectively balances the risk carry in the loan transaction, providing a strong RMB risk averse investment proposition for lenders. The present equity-based loan products may be engineered specifically for private investment from groups such as superannuation (retirement) funds where the loans may be offered to members as a value add product. 20 E. The Separation of Charges (SOC) is a function applying to low interest loans to ensure the separation of the principal and unpaid interest accounts essentially interrupting the process of compounding interest on interest normally applied to the principal sum as is evident in prior art such as interest based equity release products. 25

Separation of unpaid interest charges from the principal amount occurs so that any unpaid interest is not applied to the principal amount of the loan product. Given that prior art relies on one primary charge for capital, an interest coupon rate, it is proposed that this mechanism would be used to enhance returns on capital. This is a reason why in some prior art products, 30 interest may accrue on interest resulting in a complete loss of equity in a home. This is often referred to as the ‘compound effect of interest’.

The equity release product subject the invention ameliorates such an issue because it is configurable to engineer returns in a capital transaction without the interest component 35 behaving the way it does in some prior art products. This is enabled by separating the principal amount of the loan and the aggregated unpaid interest amount (subject to ongoing penalty charges for the unpaid interest component) but this would not be applied or allowed to 30 2015213290 12 Aug 2015 5 compound /accrue against the principal loan amount. Therefore, when the loan is repaid by the property owner, three separate amounts would become payable from three independent accounts -:

Account 1 Principal loan amount (fixed)

Account 2 Unpaid interest with penalties (subject penalty for unpaid portion) Account 3 Growth entitlement (market growth, IRV and Loan book variants) 0 The SOC metric remunerates the Lender for any unpaid interest charges plus penalties and enables the equity to be fixed in contract, critically protecting the property owner from the consequence of ‘equity creep’ that is a major deterrent for borrowers with prior art such as reverse mortgages and equity release products. 5 F. Rollover Provision (ROP) is an integrated functionality in the equity release product that ensures that a borrower can never default on the equity based loan. A ‘no default’ rollover provision means that property owners over the age of 60 years will continue living in their homes for as long as they need or require. ?0 The following is an example of the data transformations involved in a preferred form of the invention, with the inputted variable data being:

Assumptions:

Loan Amount= 100,000 CCV= 1,000,000 Fixed IRV= 50% 25 1. Fixed Equity Value (FEV) 1a Fixed Equity Value (adjusted)

FEV adj = FEV + RPM FEV = (Loan amount / CCV1) x 100 30 = 100,000/1,000,000x 100 = 10% 2. Integrated Risk Value (IRV) 35 IRV = fUFEV + RPV) /100) x CCV11 - Loan amount X 100

Loan 31 50 = Γ((10 + RPV) / 100) x 1.000.0001. - 100.000 X 100 100,000 2015213290 12 Aug 2015 5 50 =[((10 + RPV) x 10.000) - 100.0001 X 100 100,000

(50 x 100,000) /100. = (100,000 + 10,000 RPV) - 100,000 I0 50,000 + 100,000 = 100,000 + 10,000 RPV 50,000 = 10,000 RPV RPV = 5 15 3. Risk Premium Value (RPV) f((IRV x Loan /100) +Loan) x1001 - FEV RPV = CCV1 ’0 IRV = ((FEV + RPV) /100) x CCV1) - Loan amount X100

Loan RPV = f((IRV x Loan /100) +Loan) x1001 - FEV CCV1 25 [((50 x 1000)+100.000) x 1001 -10 1,000,000 15.000. 000 - 10 30 1.000. 000 5

Description of an exemplary standardised system risk rating process used in conjunction with 35 a property processor and postcode filter to establish the primary risk of growth in a property not occurring over a loan contract period now follows. 32 2015213290 12 Aug 2015

The risk rating process involves establishing and calculating the Risk Premium Value (RPV) for each loan contract so as to allow establishment of the FEV adj value in contract. The RPV will typically vary for each loan. In this embodiment, the RPV risk rates the transaction based on the potential of the underlying property asset to generate growth over time. The primary 5 method involves initial use of a property analyser and postcode (zipcode) filter that will identify a property subject a loan application that fails to meet the ‘premium property’ criteria. (Refer ‘Premium Property Criteria”). An Integrated Risk Value (IRV) will be system programmed and fixed at a percentage value of, say 45% (Refer ‘IRV Look up table’) and is automatically amortised out over the 15 year contract period at 3% pa.ie 45/15 This enables calculation of 0 the RPV for each NGL loan application using the appropriate algorithm re the underlying property asset (See Case Study) following the input of the following key primary loan data -: a) Certified Valuation of the property asset subject the NGL loan (CCV1) b) Amount of loan /equity release (loan amount) 5 c) Fixed Equity Value (FEV) d) Integrated Risk Value (IRV)

The purpose of program fixed IRV value at, for example, 45% (amortised and annualised at 3% pa) is to enable calculation of the RPV value and to generate a standardised and 10 theoretical risk return for all approved loans (as a means of risk evaluating each loan transaction based on the probability that sustained\future growth will not occur) in conjunction with a downside risk value that is integrated into the central system computer. The investor downside risk value is integrated into the operating platform whereby investors are indemnified by property owners to any negative market growth in any year that occurs, say < -3% pa (ODV 25 = - 3% pa). Investors are therefore protected against volatility or major market falls during the loan contract period < -3% pa.

Description of an exemplary case study now follows, and based on the following assumptions: CCV1= $1m, Loan: 200k, FEV= 20%, IRV= 45%. 30

These data elements are inputted into a computer having software programmed to execute an algorithm to calculate the RPV value as shown below: 35 RPV = {(IFVx Loan Amount /100) + Loan Amount) x 100 OCV1 33 FB/ 2015213290 12 Aug 2015 RPV = {(45 x 200,000/100) + 200,000} x 100 L 1,000,000 ] 20 5 10 {90,000 +200,0001x100 - 201,000,000 J 29,000,000 11,000,000 J - 20 = 9% 15 The system calculated RPV value is then used to calculate the FEV adj as follows-: FEV adj = FEV +RPV = 20 + 9 = 29% The FEV adj value is fixed in the loan contract and used in conjunction with a Current Certified Valuation (CCV) to determine the loan value at any time during the contract period as shown in the formula -: Loan Value = FEVadj x CCVn, where n=redemption year. ?5 The following system based calculations are used to check the above data results i.e. RPV and FEVadj TCV = FEV adj x CCV1 where TCV = Total Capital Value ($) = 29 x 1,000,000 30 = $290,000 TRV = TCV - Loan where TRV = Transaction Risk Value ($) = 290,000 - 200,000 = 90,000 35 IRV = TRV/Loan x100 where IRV = Integrated Risk Value (%) = 90,000/200,000x 100 = 90,000/2000 = 45% 40 34

The IRV value is a system variable and can only be changed by unanimous agreement of all licensees and the RCI Platform Australia Limited Board of Directors. Any change may be a function of increasing or decreasing Reserve Bank cash rates at the time of nominated change. IRV system values may be selected from the following lookup table, however an IVR 5 value will not be approved or programmed where its amortised annual value exceeds the Reserve Bank cash rate by more than 1.0 percentage point. 2015213290 12 Aug 2015

Table: IRV lookup table (based on 15 year loan contract) IRV Amortised IRV pa RBA cash rate Cbmment 30 2.00 2.00 35 2.33 2.00 Minimum IPV value 40 2.66 2.00 45 3.00 2.00 Start Level of System 50 3.33 3.00 55 3.66 4.00 60 4.00 4.50 65 4.33 5.00 70 4.66 5.50 75 5.00 6.00 Upper limit IPV value 80 5.33 6.25 85 5.66 6.50 90 6.00 7.00 95 6.33 7.25 100 6.66 7.50 35

Claims (29)

1. CLAIMS:

   1. A system for configuring a real property equity release product, the system comprising: a computer, and computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product. 2 The system of claim 1 wherein in providing the risk-adjusted valuation of the property, the software utilizes one or more information types useful in quantifying a risk related to the property.
2. 3. The system of claim 2 wherein the one or more information types is/are obtained from one or more information sources in direct or indirect communication with the computer.
3. 4. The system of claim 3 wherein the one or more information sources are controlled by a party or parties different to the party or parties controlling the computer.
4. 5. The system of claim 3 or claim 4 wherein the one or more information sources are remote to the computer.
5. 6. The system of any one of claims 2 to 5 wherein the one or more information types useful in quantifying a risk related to a real property is information useful in determining a risk that the property subject the equity release product (i) fails to achieve a predetermined increase in value over time or (ii) decreases in value over time.
6. 7. The system of any one of claims 2 to 6 wherein the one or more information types is relevant or potentially relevant in predicting future value of the property subject the equity release product.
7. 8. The system of claim 7 wherein the information type(s) is/are selected from the group consisting of: a property price index, property price indices over a period, location of property subject the equity release product, type of property subject the equity release product, dwelling (if any) size and/or characteristics of the property subject the equity release product, land size and/or characteristics of the property subject the equity release product, economic information, interest rate information, wages information, employment information, demographic information, climate information, regulatory information, town planning information, compulsory acquisition information, legal information, title information, and covenant information.
8. 9. The system of any one of claims 2 to 8 comprising the use of at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 information types to provide the risk-adjusted valuation
9. 10. The system of any one of claims 2 to 9 wherein the information sources are controlled by at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 different parties.
10. 11. The system of any one of claims 1 to 10 wherein the software is configured to determine a risk-adjusted valuation be reference to (i) a base valuation and (ii) the one or more information types useful in quantifying a risk related to the property.
11. 12. The system of claim 11 when appended to any one of claims 3 to 9 wherein the base valuation is determined at least in part by reference to information communicated to the computer from one or more information sources.
12. 13. The system of any one of claims 1 to 12 wherein the software is configured to determine a risk value from the information useful in quantifying a risk related to a real property, and then using the risk value to provide the risk-adjusted valuation.
13. 14. The system of any one of claims 1 to 13 wherein the real property is a residential property.
14. 15. The system of any one of claims 1 to 14 wherein the real property is not a commercial property.
15. 16. The system of any one of claims 1 to 15 wherein the real property comprises a land component and a building component.
16. 17. The system of any one of claims 3 to 16 comprising a data validation computer in direct or indirect communication with the computer having computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product, the data validation computer being in direct or indirect communication with the one or more information sources.
17. 18. The system of any one of claims 3 to 16 comprising an information collation computer in direct or indirect communication with the computer having computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product, the information collation computer being in direct or indirect communication with the one or more information sources.
18. 19. The system of any one of claims 1 to 18 comprising a computer of, or associated with, an annuity originating company in direct or indirect communication with the computer having computer-executable software configured to provide a risk-adjusted valuation of the property subject of the real property equity release product.
19. 20. A computer-implemented method for configuring a real property equity release product, the method comprising the steps of: providing or determining a base valuation of a real property, providing or determining a risk value associated with the real property, and determining a risk-adjusted real property valuation by reference at least in part to the base valuation and the risk value.
20. 21. The method of claim 20 wherein risk value is provided by, or determined by reference at least in part to one or more information types useful in quantifying a risk related to a real property.
21. 22. The method of claim 21 wherein the one or more information types useful in quantifying a risk related to a real property is information useful in determining a risk that the property subject the equity release product (i) fails to achieve a predetermined increase in value over time or (ii) decreases in value over time.
22. 23. The method of claim 21 or claim 22 wherein the one or more information types is relevant or potentially relevant in predicting future value of the property subject the equity release product.
23. 24. The method of claim 23 wherein the information type(s) is/are selected from the group consisting of: a property price index, property price indices over a period, location of property subject the equity release product, type of property subject the equity release product, dwelling (if any) size and/or characteristics of the property subject the equity release product, land size and/or characteristics of the property subject the equity release product, economic information, interest rate information, wages information, employment information, demographic information, climate information, regulatory information, town planning information, compulsory acquisition information, legal information, title information, and covenant information.
24. 25. The method of claim 23 or claim 24 wherein the information types useful in quantifying a risk related to a real property are obtained from at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 information sources.
25. 26. The method of claim 25 wherein the information sources are controlled by at least 2, 3, 4, 5, 6, 7, 8, 9 or 10 different parties.
26. 27. The method of any one of claims 20 to 26 wherein the real property is a residential property.
27. 28. The method of any one of claims 20 to 26 wherein the real property is not a commercial property.
28. 29. The method of any one of claims 20 to 28 wherein the real property comprises a land component and a building component.
29. 30. Computer-executable software configured to execute the method of any one of claims 20 to 29.