WO2007079132A2 - System and method for providing reverse mortgages - Google Patents

Abstract

A system and method for providing reverse mortgage-related lending. The method includes arranging financing from a financier to a reverse interest-eligible party with an insurable interest, providing financing to the party, arranging a life insurance policy from an insurance provider to the party, reconciling insurance premiums accountable to the life insurance policy by the financier; and satisfying the party's financing debt through a death benefit received from the life insurance policy. The present invention is applicable to homeowner's presently holding a reverse mortgage and homeowners entering reverse mortgages in the future. The present invention is optionally automated.

Description

SYSTEM ANP METHOD FOR PROVIDING REVERSE MORTGAGES

FIELD OF THE ESfVENTION

The invention relates to a system and method for securing premium financed life insurance for reverse-mortgage borrowers based on insurable interests.

BACKGROUND OF THE INVENTION

Since 1988, reverse mortgages (sometimes known as "Home Equity

Conversion Mortgages" or "HECM") have been used as an instrument designed to provide a portion of a senior's home equity as an income or revenue stream during and for retirement. A reverse mortgage enables older homeowners, Ie., 62+ years of age as permitted by the current regulations which govern reverse mortgages (also referred to herein as "senior homeowners," "seniors," "debtors," "borrowers," "reverse mortgagee," "mortgagee," or generally as "the party") to convert part of the equity in their homes (also referred to herein as "residence," "house," or "asset") into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. In a conventional reverse mortgage, the payment stream is "reversed." That is, instead of making monthly payments to a lender (also referred to herein as "mortgagor" in certain embodiments), as with a regular mortgage, the lender makes payments to the homeowner. The equity of the home serves as collateral for the loan.

There are several types of reverse mortgage products. Generally, the amount of money received in a reverse mortgage generally depends, inter alia, on the age of the homeowner(s), appraised home value, interest rates, and the type of reverse mortgage. The basic reverse mortgage provides a homeowner with a portion of the unused equity in the home. The deed never changes hands in a reverse mortgage, however. The homeowner will accrue interest upon the funds secured via the reverse mortgage. The homeowner is generally not obligated to return any of the cash or accrued interest as long as the homeowner, which also may include a spouse of the homeowner, lives in the home under debt.

When the debtor-homeowner(s) passes on (Le., death) or stops living in the mortgaged home, the lender may call the loan (i.e., the loan is due) plus an agreed upon interest. The surviving family members (also referred to herein as "estate," "kin," or "heirs," and generally represented by "the spouse") may be permitted to repay the loan (and interest in many cases). Typically, if the surviving family members or estate are unable to repay the loan the lender can force the sale of the home, thereby foreclosing the property to satisfy the incurred debt. Accordingly, following the sale, the lender likely would receive the principal plus interest, and the estate would receive whatever equity remained in the home prior to sale.

Lenders have been fast to embrace reverse mortgages as an added product line. Typically, reverse mortgages are less risky than other lending options. Reverse mortgages are generally fully secured. Moreover, the Federal Housing Authority's (FHA) participation in the process as an insurer against loss to the lender has greatly enhanced the viability of reverse mortgages to lenders by eliminating the vagaries of real estate prices to the detriment of 100% loan satisfaction.

Despite the increased use and prevalence of reverse mortgage lending, the reverse mortgage system, as it conventionally exists, has numerous flaws within its central design. These flaws typically diminish the ultimate satisfaction and return for the lenders and homeowners, and thus limit the productivity or marketability of reverse mortgages.

For homeowners the drawbacks are significant. FHA participation is an actual detriment to the reverse mortgage market. More than 90% of all reverse mortgages are insured by the FHA. Essentially, the FHA guarantees the difference between the ultimate debt accrued and the eventual value of the home mortgaged. In order to retain the ongoing participation of the FHA insurance program, the homeowner's home can only be appraised using an index of county assessments or the like (herein collectively known as "county assessments"). The FHA places a cap on these assessments. As of this writing, the cap is $312,800. Homes valued (by a fair market assessment, for example) at more than this amount are thus undervalued by the FHA valuation. Since generally homeowners only receive a percentage (e.g., 60%) of the value of their home as a reverse mortgage loan anyway, increasingly homeowners are receiving less in reverse mortgage loans than what they could have receive under a fair market valuation system.

The county assessment model required by the FHA is a drawback for reverse mortgage lenders as well. The interest generated, and therefore the essential gross margin, on a reverse mortgage is very slender. County assessments generally provide a lower valuation than other assessments, therefore the amount of the financing is generally smaller. To be profitable, reverse mortgage lenders typically rely upon high dollar volume loans in order to make their models work. With the amount of cash-to-equity capped in such a way as to mitigate the explosive growth in real estate prices, reverse mortgage lenders are again stuck with two flawed choices. Lenders can employ FHA standards and dramatically reduce gross loan value tendered, or lenders can withdraw from FHA insurance programs and assume increased risk. From the perspective of the lender, there is generally a diminished value on a home upon the homeowner's death due to a reverse mortgage, particularly when an unrealistic loan-to-value extension is offered by way of a FHA insured reverse mortgage..

Another drawback of conventional reverse mortgages is that homeowners are faced with the legacy of debt left in the wake of their passing. While surviving heirs can satisfy the debt out-of-pocket or from other bequeathed assets, the sheer size of the debt accrued often obligates the sale of the family home to satisfy the debt. Thus, encumbering heirs with the homeowner's legacy serves to substantially reduce productivity and ongoing interest in conventional reverse mortgages.

Moreover, among the drawbacks for lenders includes the limitation on productivity and the ability to extend greater cash to equity to the borrower. When the federal government first mandated the participation of both government agencies and government- sponsored enterprises (e.g., Fannie Mae), it put a limit on the physical number of reverse mortgages it would insure. The original number by the FHA was 150,000 reverse mortgages. While this cap has been raised to 250,000 recently, there is still a limit on the maximum number of reverse mortgages that are insured by the government. It is estimated that by mid- 2006 the reverse mortgage production will reach a maximum level, effectively placing a ceiling on the reverse mortgage market, and consequently the productivity of its lenders. Few alternatives are available. Lenders may develop other reverse mortgage products, but they would not be insured by the FHA, and thus, there would be a substantial increase in risk that typically would deter lenders from pursing this alternative. The most expected alternative is that lenders would simply stop lending on reverse mortgages completely to the detriment of future seniors.

One potential mechanism to alleviate the drawbacks of the reverse mortgage system is to integrate insurance companies and large banking institutions to provide financing to reverse mortgagees individual universal life insurance policies. Laws in all 50 states, however, limit the involvement of these institutions to provide such financing by implementing prohibitions and penalties against speculation where the sole engine of return is the death of an individual. These laws have created both a legal and moral imperative for insurance companies and banking institutions alike to avoid transactions dependent on the death of individuals. Typically, there are few, if any, exceptions or loopholes within these laws. However, under most, if not all, pertinent regulations, both state and federal, certain transactions involving a qualified "insurable interest" are permitted.

There is an unmet need to remedy the inherent flaws for existing reverse mortgage participants, to eliminate the flaws for future participants, and to increase the market for reverse mortgages. Moreover, there is an unmet need in the art to provide reverse mortgagors with non governmental protection on mortgage collateralized loans. Accordingly there is a significant need to incorporate the financing of insurance companies and banking institutions with mortgagees and mortgagors to develop a system utilizing the unused capacity in a homeowner's net worth, Le., the insurable interest, in securing reverse mortgages. From the perspective of the homeowner, there is an unmet need in the art to obtain reverse mortgages without diminishing the value of the home at death and/or upon passing on of the home to heirs. This invention will serve to substantially remedy the inherent flaws for existing and future reverse mortgage participants and to eliminate those flaws altogether for many other future participants.

SUMMARY OF THE INVENTION

The present invention meets the unmet needs in the art by providing a system and method for providing an enhanced solution for the distribution, execution and revenue streams for parties involved with reverse mortgages. Generally, the present invention provides a system and methods for securing life insurance benefits tied to the reverse mortgage debt for parties engaging, or who will be engaging, in reverse mortgages.

The "insurable interest" generated by the reverse mortgage debt allows insurers to issue premium financed life products to reverse mortgagees while remaining within full compliance of laws currently issued in all fifty states. These applications will provide a unique methodology for the financing, execution and eventual satisfaction of reverse mortgages. The system and method of the present invention provides a greater portion of a homeowner's equity to secure a greater rate of return for reverse mortgage lenders and to reduce or eliminate the future legacy of debt as a condition of current and past reverse mortgage instruments. Additionally, the use of premium financed life insurance eliminates the risk associated with conventional reverse mortgages for both the federal government (e.g., FHA) and the artificial caps on lenders, whose product is insured by the FHA, by decreasing reliance on government-based assurances on the reverse mortgages.

The invention additionally relates to a method of providing reverse mortgage- related lending. The invention includes 1) arranging financing from a financier to a reverse interest-eligible party with an insurable interest; 2) providing financing to the party; 3) arranging a life insurance policy from an insurance provider to the party; 4) reconciling insurance premiums accountable to the life insurance policy by the financier; and 5) satisfying the party's financing debt through a death benefit received from the life insurance policy. The invention also encompasses a system for providing reverse mortgage- related lending. The system includes a processing system configured and adapted to communicate with a plurality of computers, wherein the processing system is arranged to accept input of financing from a financier to a reverse-mortgage eligible party with an insurable interest; a life insurance policy based on the insurable interest providing a death benefit from an insurance provider to the party; an insurance premium accountable to the life insurance policy and satisfied by the financier; and debt incurred from the financing through death benefits from the matured life insurance policy.

The invention further relates to an article of manufacture, which includes a computer readable medium; and a data structure stored thereon adapted and configured to signals, wherein the data structure comprises a computer readable system for providing reverse mortgage-related lending. This system includes arranging financing from a financier to an eligible party with an insurable interest; providing financing to the party; arranging a life insurance policy from an insurance provider to the party; reconciling insurance premiums accountable to the life insurance policy; and satisfying the party's financing debt through death benefits from the life insurance policy.

The invention further encompasses a system for providing reverse mortgage- related lending having a means for arranging financing from a financier to an eligible party with an insurable interest; a means for providing financing to the party; a means for arranging a life insurance policy from an insurance provider to the party; a means for reconciling insurance premiums accountable to the life insurance policy; and a means for satisfying the party's financing debt through death benefits from the life insurance policy.

Any of the embodiments illustrated above and below stand independently or features may be combined to achieve preferred embodiments. Additional advantages and embodiments of the invention will also become more apparent to those of ordinary skill in the art upon review of the teachings of the present application.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 describes an exemplary system and method of the present invention wherein the homeowner has previously obtained a reverse mortgage prior to obtaining life insurance based on the insurable interest of the reverse mortgage, in accordance with one embodiment of the present invention;

FIG. Ia further describes an exemplary system and method of the present invention wherein the homeowner has previously obtained a reverse mortgage prior to obtaining life insurance based on the insurable interest of the reverse mortgage, in accordance with one embodiment of the present invention;

FIG. 2 illustrates an exemplary system and method of the present invention wherein the homeowner has previously obtained a reverse mortgage prior to obtaining life insurance based on the insurable interest of the reverse mortgage, in accordance with one embodiment of the present invention;

FIG. 3 illustrates an exemplary system and method of the present invention wherein the homeowner substantially concurrently obtains a reverse mortgage and life insurance policy based on the insurable interest created by the reverse mortgage, in accordance with one embodiment of the present invention;

FIG. 4 illustrates an exemplary return on investment for a financier operating the system and method of the present invention, in accordance with one embodiment of the present invention;

FIG. 5 depicts an exemplary return on investment for financier wherein the mortgagee receives 60% of the home's value, in accordance with one embodiment of the present invention;

FIG. 6 illustrates an exemplary comparison of the death benefit and loan amount, in accordance with one embodiment of the present invention;

FIG. 7 presents hardware, software or a combination thereof that may be implemented in one or more computer systems or other processing systems to carry out the functionality of the present invention, in accordance with one embodiment of the present invention; and

FIG. 8 presents an exemplary system diagram of various hardware components and other features, in accordance with an embodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

Generally, the present invention effectively alleviates the legacy of debt on heir(s) collectively or individually also known as "heir") of a homeowner, who created debt via a reverse mortgage. The present invention allows debt secured homes under a reverse mortgage to be legal insurable interest and the basis for providing financing for life insurance, which has a death benefit to satisfy, in part or in whole, the accrued reverse mortgage debt. As a result, the present invention likely would generate a greater rate of return (Le., revenue stream) for the mortgage lender than a conventional reverse mortgage. The present invention is applicable to homeowners who normally qualify for reverse mortgages and to providers of reverse mortgages or lenders in general. The present invention is adaptable to providing life insurance policies based on the insurable interest created by a reverse mortgage. Laws generally require that to issue life insurance of any value, the insured must have a viable asset or liability which is to be protected. Thus, an insurable interest must be provided by the insured if a homeowner and a financier are to engage in any premium financing scheme involving life insurance. The insurable interest is generally characterized by the "unused capacity" within the insured's net worth. In the context of the present invention, insurable interest is in fact the ongoing debt derived from the reverse mortgage. Insurable interest corresponds to the interest generated by an occurrence of an event insured against that would cause financial loss to the insured.

Hence, in embodiments of the present invention, "insurable interest" includes the current and future (and/or soon to be) accrued debt on behalf of the mortgagee. Life insurance may generally be provided in an amount up to the amount of insurable interest, and without the presence of insurable interest, an insurance contract is not formed for a lawful purpose, and thus, is void from the start. The interest may be that of an owner, mortgagee, lessee, trustee, etc. Accordingly, reverse mortgage debt is insurable interest.

While any individual can buy life insurance to protect an heir from the eventual debt accrued, the cost of the premiums to purchase and maintain the life insurance tend to erode proceeds of the death benefit over time. The present invention provides homeowner with the insurance generally without obligation to directly pay premiums. That is, the financier or the reverse mortgagor, in accordance with the embodiment discussed, pays the premiums on behalf of the homeowner. Thus, life insurance is provided to the homeowner at little cost to the homeowners or preferably at no cost to the homeowner. Often, the amount of death benefit, i.e., the size of the policy, corresponds to the size of the debt.

The present invention, as applied to the ongoing business model for reverse mortgagors, also eliminates the FHA, and that agency's implied risk from the reverse mortgage process, while maintaining a level of security and safety, i.e., weakened risk regarding the return on investment (ROI), to the lender via interaction with the private sector, including for example insurers and financiers.

As used herein, "reverse mortgage" generally encompasses a loan giving a senior homeowner the ability to change home equity into cash. Usually no payments are due until the senior homeowner moves, passes away, or the home is sold. The loan is due when the senior homeowner dies, moves, or sells. The final payment is calculated to not exceed the home's selling price. Typically, the lender makes periodic payments or a single payment to the mortgagee using the mortgagee's equity in the home as security. Also, typically, distributed amounts of the reverse mortgage are subject to interest.

As used herein, "homeowner" is interchangeably referred to as "mortgagee," "borrower," "the insured," or "individual." The homeowner is defined as an individual having equity in a home and having the ability to enter into a reverse mortgage and to collateralize the home. In some variations, the homeowner includes any individual legally permitted to obtain a reverse mortgage.

As used herein, "home" is interchangeably used with "estate" and "residence" to encompass real property, or any other property as designated by the law, which may be the basis of a reverse mortgage.

As used herein, "senior" is used in the context of a homeowner qualified for a reverse mortgage based on age, encompasses individuals 62 years of age or older to qualify under reverse mortgage regulations as of 2005, or any individual having an age within the range of ages permitted to obtain a reverse mortgage, as dictated by federal, state, and/or local regulations.

As used herein, rules, regulations and/or laws governing the use, application, and legality of reverse mortgages include federal, state, county, local, city, and/or municipality ordinances and/or laws relevant to reverse mortgages, or any combination thereof.

As used herein, "reverse mortgagor" encompasses any person(s) or entity providing reverse mortgages. The reverse mortgagor, in certain embodiments of the present invention, may provide premium financing in addition to the reverse mortgage.

As used herein, "financier" includes a person or entity providing financing, particular premium financing in the context of the present invention. The financier does not preferably provide a reverse mortgage.

As used herein, "premium finance" generally embodies a process where a lender pays an insurance premium to an insurer on behalf of an insured. The policyholder repays the lender for the amount of the loan (principal) and possibly plus interest and any assessable fees and charges. Accordingly, a premium financier is a party that provides such financing.

As used herein "life insurance" encompasses insurance in which the risk insured against is the death of a particular person, the insured, upon whose death while the policy is in force, the insurance company agrees to pay a stated sum or income to the beneficiary. As used herein, "insurer," "life insurance company," or "life insurance carrier" generally includes any entity providing life insurance to a homeowner and/or individual with a death benefit due upon the death of the homeowner and/or individual.

As used herein, "death benefit" includes the insurance proceeds due upon the death of the homeowner. It is the stated sum or income to the beneficiary. The death benefit may be subject to interest.

As used herein, "beneficiary" encompasses the person(s) or entity designated to receive the proceeds (i.e., the death benefit) from the life insurance policy when an insured dies. This may include heirs, specifically spouses, and/or lenders.

As used herein, "return on investment" (ROI) means the amount of profit (return) based on the amount of resources (funds) used to produce it.

As used herein, "substantially concurrent" or "substantially concurrently" encompasses a period in which one or more events, such as the execution of a life insurance policy and the execution of a reverse mortgage are completed at relatively the same time or in a manner such that they are considered to be completed at the same time or in one overall transaction, such as when viewed under tax code.

The present invention provides methods and systems for providing reverse mortgages through manual or automated sources. The methods and system generally involve one or more transactions encompassing the issuance of life insurance with a death benefit that equals, substantially equals, or negates all or some portion, of the reverse mortgage debt. Generally then, the present invention is applicable where a reverse mortgage either exists prior to the time (i.e., execution) of the premium finance transaction(s) or is agreed upon at a time that is substantially concurrent to the time of the transaction(s) of the present invention. Moreover, the present invention requires that a life insurance policy is issued to the holder of the reverse mortgage with a death benefit paid at the homeowner's (Le., mortgagee's) death. The proceeds of the death benefit absolve the reverse mortgage in its entirety or in some portion thereof.

In accordance with the present invention, some embodiments include transactions wherein the reverse mortgage is assumed by the homeowner prior to obtaining the life insurance policy, as a component of the present invention. In other embodiments, the transaction includes the issuance of life insurance and the extension of a reverse mortgage that is substantially concurrent.

Accordingly, one embodiment of the present invention provides premium financing through life insurance to a homeowner holding a reverse mortgage (also referred to herein as a "reverse mortgage holder" or "mortgagee"). Thus, the reverse mortgage transaction between the homeowner and the reverse mortgagor is generally independent of the premium financing transaction arranged by a financier and the homeowner. In this embodiment, "insurable interest" is comprised of the all or some of the accrued debt on assumed by the mortgagee. That is, the insurable interest is equal to the amount of the reverse mortgage amount.

While this embodiment is preferably applicable to a homeowner having a reverse mortgage already in place, it is not limited in that regard. Accordingly, this embodiment may also be applied to homeowners considering entering into a reverse mortgage, but does not generally provide financial incentives as lucrative as other embodiments of the present invention because of the capped loan amounts commonly found in conventional reverse mortgages, (discussed infra).

In conventional reverse mortgages, reverse mortgagors typically lend an amount that is no more than 60% of the value of the house. The 60% is an industry standard that is known to one skilled in the art, but may be adjusted up or down on an individual basis, as required by law or at the discretion of the reverse mortgagor. The percentage loaned of the value amount is 100% or less, preferably 70% or less, and more preferably 60% or less. Alternatively the percentage loaned is 40% to 80%, preferably 50% to 70%, and more preferably 60%.

Moreover, in conventional reverse mortgages, the value of the house is capped by county assessed values, which is generally lower than market assessments (also referred to herein as fair market value assessments), and is often capped by the FHA. For example, the estimated cap in 2005 was $312,800. Fair market value assessments are not typically capped.

In one variation of this embodiment, as applied to current reverse mortgage holders, at least three primary parties are involved in the deal moving forward (Le., after the reverse mortgage is established: 1) the mortgagee; 2) the premium financier; and 3) the life insurer. A financier may be comprised of insurance companies, banks, venture capitalists, angel investors, individual(s), government and non-government entities, private funds, a combination thereof, or any entity either real and/or legal that can provide capital, funding, or monetary loans. It is notable that the reverse mortgagor is preferably not the same as the financier, i.e., the reverse mortgagor is not a party in privity to the financing, in this embodiment. More specifically, the reverse mortgagor does not preferably provide the premium financing, as provided in this embodiment. In variations of this embodiment, the mortgagee is offered a whole life insurance policy by the life insurance company (or broker or agent) with a predetermined death benefit, as is generally known to one of ordinary skill in the art. The level of death benefits are established by each insurer, as generally known in the art. Preferably, death benefits are equivalent to the size of the anticipated reverse mortgage debt, in some variations. For example, at least three levels of death benefits may be offered: a) $200,000; b) $350,000; and c) $500,000. For example, each insurance policy rendered has a fixed death benefit of $200,000. The death benefit is determined by factoring: the age of insured, assets and/or cash directed into an advanced premium distribution fund, and the desired R.O.I, for the financier and insurer.

The financier, in one other variation, stipulates the debt insured and the amount to be repaid by the homeowner. Generally, the debt insured is equivalent to the debt accrued by the existing reverse mortgage. The debt insured is not directly linked to the insured amount, and therefore, it is within the scope of this embodiment to have the reverse mortgage debt be greater than or less than the insured amount. In variations, the amount of the debt insured by the financier is in full compliance with the federal, state, and/or local laws in which the policy is originated. In some variations, the life insurance policy may carry by agreement a predetermined adjustable yield to the advantage of the financier.

In accordance with the present invention, the life insurance policy is preferably offered at zero cost to the insured (the homeowner is both the reverse mortgagee and the insured); the financier is responsible for the payment of premiums and/or cost associated with the life insurance policy. Upon acceptance of the life insurance by the mortgagee — consent by the mortgagee to undertake the life insurance must typically be given — the financier finances the premiums required to fund the policy in full, as determined by the life insurance company typically. The financier may pay the premium in any way as agreed upon with the insurer, for example installment, deferred, or preferably in one payment, to activate the life insurance policy.

Through the payment of the premiums on behalf of the mortgagee, the relationship between the financier and the insurance company generally includes a nonrecourse loan, which means that neither the insurance carrier nor the financier can cancel or alter the policy to the detriment of the insured. In one variation, the financier and the mortgagee include a.binding agreement for repayment of the debt.

The mortgagee designates (also known herein as "assigns") an heir (also known as a "beneficiary," "designatee," or "assignee'), e.g., a spouse, parent(s), children, as the beneficiary of the death benefit. Accordingly, upon the mortgagee's passing, the mortgagee's designated beneficiary directly receives the death benefit amount (or some portion thereof, in accordance with the policy) from the mortgagee's life insurance policy.

Upon the mortgagee's passing, the repayment of the financing is generally due, as is generally known in the art, and the mortgagee's designated beneficiary is required to repay the financed amount to the financier. In this embodiment, the mortgagee's designated beneficiary is responsible for repayment of the financing debt. The repayment is accomplished by adding interest due to the financier to the death benefit, in one variation. At this juncture, in another variation, the financier becomes a beneficiary to the death benefit equal only to the amount of interest owed. In some variations, the financier may extend the period of financing until the death of the beneficiary. In these variations, the beneficiary is preferably a spouse of the mortgagee.

FIG. 2 illustrates a basic structure of one embodiment of the system and method of the present invention in which the homeowner has previously obtained a reverse mortgage prior to obtaining life insurance on the insurable interest of the reverse mortgage, as shown in step 601. In step 602, the homeowner receives life insurance policy based on premium financing by a financier. In step 603, the homeowner's heirs receive death benefit upon death. In addition, in step 604, the homeowners heirs satisfy the reverse mortgage debt.

An exemplary process for establishing premium financing for existing reverse mortgagees is as follows. FlG. 1 describes an exemplary system and method of the present invention wherein the homeowner has previously obtained a reverse mortgage prior to obtaining life insurance on the insurable interest of the reverse mortgage. FIG. 1 includes a verification process including the eventual insured's debt derived from reverse mortgage, and it also shows financial flow.

In FIG. 1, steps 301, 306 and 309 show a homeowner completing an application for a reverse mortgage through various routes. FF represents a exemplary reverse mortgagor and XXX represents an exemplary intermediate entity handling the processing. AARP is a representative association providing reverse mortgage information to its membership. In steps 302 -312, the application received is verified, additional information is obtained from the homeowner if necessary, the application is forwarded to the appropriate entities, and ultimately the application is approved or disapproved. It should be noted that, in accordance with this embodiment, steps 301-312, are preferably conducted prior to seeking premium finance life insurance based on the insurable interest of the reverse mortgage. In some variations, issued reverse mortgages are compiled onto a list of eligible candidates for premium financing. In step 313, the insurance company receives and reviews reverse mortgages. For example, the reverse mortgagor would review reverse mortgages issued, previously, such as over the previous 12, 24, 36, and 48 months. The insurer would evaluate the health of the accepting homeowner to determine the life insurance parameters, such as the amount of the premium and scope of the policy, as is generally understood in the art. In steps 314 and 315, the results of the insurer's investigation are forwarded to the financier, who is represented as Barclays in this example. At any time during this process, the financier may conduct financial modeling to determine the scope of the financing. Upon closing of the premium financing, the insurer would preferably establish a fund to receive the premium payments, either lump sum or installment as agreed, from the financier. The financier pays the premium requested by the insurer in step 316 and the insurer receives such premiums in step 317. Steps 320 to 322 represent contingency steps if the financing is not received by the intermediate party to forward to the insurer. In some variations, wherein reverse mortgage brokerages and/or brokers operate independently and/or on commission, the brokerages and/or brokers of the original reverse mortgage are remunerated by a party involved in the implementation of the system and method of the present invention, for each reverse mortgagee accepting the terms of the present invention. Commissions and remuneration policies may be adapted to the present invention as understood by one skilled in the art. Steps 318-319 and 323-325 describe an exemplary method compensating intermediaries in the process of the present invention.

As shown in FIG. Ia, an exemplary process upon the homeowner's death is as follows. Upon the death of the homeowner, as shown in step 351, the reverse mortgage becomes due, as shown in step 352. The insurer pays the heir(s) of the homeowner the death benefit, as seen in 353. As in step 354, the heir remits payment on the reverse mortgage, preferably from the proceeds of the death benefit, to the reverse mortgage to absolve, in whole or in part, the reverse mortgage debt. If completely absolved, the heirs obtain absolute legal rights in the home, as in step 355. If partially absolved, as in step 356, the heir pays the remaining amount due on the debt, as in step 357, and then obtains unencumbered ownership of the house, as in step 355. Alternatively, if legally available, the heir extends or renews the term of the reverse mortgage debt, and the mortgage lien continues to extend over the home. In some variations, as shown in steps 358-360, wherein the deceased homeowner leaves a spouse as an heir, the reverse mortgage does not become due until the spouses passes. FIG. 4 illustrates an exemplary ROI for the financier assuming the principal required for the life insurance is $125,000 and the interest is 4.90% over 15 years. The ROI numbers are projected to increase to over $135,000 over 15 years.

In the exemplary projections presented in FIG. 5, the base value of said home is $500,000 and the amount of the loan is $300,000. Over the course of 15 years at a rate of 5%, the 300,000 loan becomes $600,000+ debt for the homeowner (or the homeowner's heirs). As the debt becomes larger over time, the death benefit provided through the premium financing also increases, thereby reducing the overall amount of debt.

Example 1

A homeowner age 68 holds an FHA-insured reverse mortgage. The debt against the homeowner's home is $200,000 and growing at standard interest, which is 1% above 1 year T-BiIl rate adjusted monthly. Accounting for the owner's age, amount of accruing debt, and the insurable interest among other factors, the insurance company provides a $350,000 death benefit universal whole life insurance policy. By accepting the policy, the homeowner accepts and owns the policy and may choose a beneficiary. The premium of $100,000 is paid in an installment premium distribution from the financier of the policy to the insurance provider. The policy will provide a "return of premium" rider which includes an agreed upon interest rate of 80 to 100 basis points above the London Inter Bank Offering Rate (LIBOR) to be distributed upon the passing of the insured. The returned premium plus accrued interest is designed to the benefit of the financier.

Example 2.

A current reverse mortgage holder is 76 years old with an FHA insured loan. The current debt against this homeowner's home is $200,000 and growing at a standard rate as understood in the industry. Accounting for the homeowner's advanced age, as well as the reduced gross debt projected to accrue in the future due to the homeowner's age, the homeowner is offered a $250,000 death benefit whole life insurance policy for zero out of pocket expenses. The $70,000 premium for the policy will be paid in a single premium distribution from the financier of the policy to the insurance provider. The policy will provide a "return of premium" rider which includes an agreed upon interest rate of 80 to 100 basis points above the LIBOR to be distributed upon the passing of the insured. The returned premium plus accrued interest is to the benefit of the financier. Example 3.

A prospective reverse mortgage client age 65 has applied for and been approved for a "proprietary" reverse mortgage for a value of $500,000. Accounting for this homeowner's age and projected debt to accrue, this homeowner is offered an universal whole life policy with a death benefit to the insured for $500,000 for zero out-of-pocket expense to the homeowner. The premium for the policy is paid in a single premium distribution from the financier of the policies to the insurance provider. The policy will provide a "return of premium" rider that includes an agreed upon interest rate to be distributed upon the passing of the insured. The returned premium plus accrued interest is to the benefit of the financier.

Example 4.

Over the course of 30 days, blocks of insurance policies are distributed to both existing and prospective reverse mortgage holders. The financier will make the required premium payments to the insurance carrier. The financier's investment grows at an agreed upon rate which meets or exceeds standard return on investment models. The investment made by the financier is into AAA-rated, risk-free, non-recourse insurance policies. The R.O.I. for similar instruments is considerably lower that those offered by the system and process of the present invention.

In another embodiment of the present invention, the premium financing and the reverse mortgage are integrated in one, substantially concurrent transaction. Accordingly, there is no contractual agreement established between the reverse mortgagee and a reverse mortgagor prior to the premium financing of the present invention. In preferred variations, the financier, as a separate entity form the reverse mortgagor, is unnecessary, and thus, all financing, including the reverse mortgage, is provided by one party, generally encompassed by the "reverse mortgagor" for the purposes of this embodiment.

Moreover, the integration of the premium financing and reverse mortgage serves to effectively eliminate the responsibility of repayment of the financing by the homeowner {i.e., the mortgagee). Thus, in some variations of the present invention, once the homeowner executes the reverse mortgage contract, i.e., once the mortgagee accepts the reverse mortgage, the financing, and the life insurance policy, the assumed debt becomes securitized and eventually paid by the death benefit directly to the lender and not the heirs of the homeowner.

The life insurance policy covering the homeowner is preferably paid for by the reverse mortgagor. Thus, any costs, including premiums, associated with the issuance of the life insurance policy are paid for by the reverse mortgagor in a preferred variation. In other variations, costs associated with the life insurance policy are paid in part by the homeowner.

The life insurance policy is written to cover and is owned by the mortgagee, but the death benefit is directed to the reverse mortgagor in preferred variations. In some variations, the death benefit is assigned to the benefit of the reverse mortgagor at the time of issuance of the policy. Accordingly, in these variations, the homeowner cannot intervene and take possession of the death benefit. Moreover, upon the death of the insured, the lender receives the full face value of the death benefit, which absolves the outstanding debt to the surviving heirs of the insured. The heir of the homeowner does not possess debt attributable to the homeowner's reverse mortgage at the death of the homeowner. The reverse debt is automatically and instantaneously paid to the reverse mortgagor. As a result, the entirety of the home's value remains under the control of the surviving heir.

In some variations, by assigning the death benefit of the life insurance policy directly to the reverse mortgagor, without any intervention by the homeowner, the death benefit is not subject to federal, state, and/or local taxes. In conventional reverse mortgage scenarios, the sale of the home by heirs of the mortgagee may be subject to taxes. For example, the interest may be taxable.

Generally, the process of providing the reverse mortgage and premium financing is as follows. Applicants must meet the same qualifiers for the reverse mortgage of the present invention as in conventional reverse mortgages, in preferred variations. Upon approval, the reverse mortgagor extends the reverse mortgage to the homeowner (i.e., the mortgagee), while substantially concurrently issuing the life insurance policy preferably for 100% of the fair market value of the home is issued. While insurance policies may be issued for any value of the home, the ability to extend the life insurance policy up to 100% of the fair market value of the home provides reverse mortgagors with an ideal position to maximize revenue. In essence, the mortgagor can raise the loan-to-value ratio on the home, can extend a greater loan to the homeowner, and can therefore increase revenue.

Additionally, in this embodiment of the present invention, government mandated restrictions which are typically attributable to FHA restrictions (also known herein as "parameters") are eliminated. This produces a number of advantages for at least the homeowner and the reverse mortgagor. For example, the elimination of FHA required county assessments provides a more accurate valuation (e.g., fair market value) of the property. In some variations without FHA restrictions, the homeowner, however, may receive a substantially greater sum of money advanced than in conventional FHA insured reverse mortgages. In another example, the average yield returned to the lender may be increased, and this increase would provide the required capital to the reverse mortgagor for the financing of the premiums.

In a preferred embodiment, the issuance of the life insurance policy is substantially concurrent with the execution of the reverse mortgage, thereby permitting the accrued debt to be considered an insurable interest. For the purposes of the present invention, substantially concurrent means within an amount of time, under federal, state or local laws, to develop insurable interest in a reverse mortgage and premium finance relationship between a reverse mortgagor, insurer, and homeowner (i.e., mortgagee). For example, the reverse mortgagor may obtain a life insurance policy valued at 100% the value of the home while extending a reverse mortgage loan of 60% of the value of the house (conventional amount) to the homeowner.

In some variations, the mortgagee has several the options to receive proceeds from the reverse mortgage loan, including delayed distributions, e.g. , a line of credit, or annuity (Le., annual payments) or lump sum payment, for example. The type of distribution and the amount distributed, including any caps, are controlled by the reverse mortgagor, the homeowner, or a combination thereof.

It is important to note that many, not all, delayed distribution offerings (e.g., line of credit, annual payments) may earn interest to the benefit of the homeowner upon the unused cash extended by the mortgagor. The funds distributed to the homeowner may be generating interest at a mutually agreed upon rate, such as at an industry standard, e.g., 1% point above the 1-year United States Treasury Bond in some variations.

In variations of the embodiment, the death benefit issued earn interest corresponding to the interest generated on the loan (mortgage) amount. In some variations, interest accruing on the death benefit increases at the exact same amount as the interest accruing on the reverse mortgage debt. For example, the interest on the reverse mortgage debt is 5.25%, and the interest on the death benefit under the insurance policy is 5.25%. Interest may be compounded in some variations. In certain variations, the death benefit increases at a rate greater than or less than the interest charged to the mortgagee. Accordingly, the death benefit may be designed in the life insurance policy to match the amount of reverse mortgage debt accrued.

FTG. 3 illustrates the system and method of the present invention wherein the homeowner substantially concurrently obtains a reverse mortgage and life insurance policy on the insurable interest created by the reverse mortgage, in accordance with one embodiment of the present invention. The flow chart includes steps from the initiation of the reverse mortgage debt to the eventual payout to the financier. Additionally, the figure shows the resolution of the mortgagee's debt via life insurance as opposed to the sale of the family home.

In FIG. 3, the homeowner, i.e., the borrower, values the home at $500,000 and seeks a reverse mortgage from a reverse mortgagor (also referred to as "lender" and/or "RM"), as shown in step 501. It is important to note, that the value of the home exceeds the FHA limit as of the writing of this disclosure, and thus the fair market value of the home is being taken into account. As shown in steps 502 and 503, the reverse mortgagor processes the reverse mortgage application and extends to the homeowner a reverse mortgage of 60% of the $500,000 value, which is $300,000. In step 504, the debt, which is also insurable interest, issues. Step 505 occurs substantially concurrently with step 503, so that steps 503 and 506 may be considered one transaction or related transactions. Step 506 is optional but ensures that the death benefit of the insurance policy increases at the same rate as the reverse mortgage debt. Step 507 illustrates that the difference in value between the value of the house and the amount of insurance is 40%. In step 507, the reverse mortgagor pays the life insurance policy premiums, either in a lump sum or in installments. In step 509, the homeowner passes away, and the reverse mortgage becomes due. The homeowner's heirs are not responsible for payment to the reverse mortgagor, however. As the beneficiary of the death benefit, the reverse mortgagor directly receives the death benefit.

FIG. 6 shows exemplary financial activity over time as it relates to one embodiment. The graph shows the "margins" earned within the invention when the mortgagor pays the premiums for a life policy equal to 100% of the homeowner's home. The mortgagee receives 60% of the home's value of $500,000, and takes all of the money extended in the loan. The remaining amount of the home's value, i.e., the "unloaned" 40% of the home's value, earns excess income to pay for the premiums annually. While 100% of the home's value is insured with the death benefit going to the mortgagor, 40% of the face value death benefit is unencumbered money that may earn the interest to pay for the death benefit.

Example 6.

A homeowner age 62 applies for and qualifies for a reverse mortgage. Since the FHA insurance parameters are not applicable, the'reverse mortgagor determines the fair market value of the homeowner's home, as opposed to reverting to the county assessment index as required by the FHA. The FHA county assessment is $300,000 and the fair market value assessment is $500,000. The fair market value valuation is higher than the FHA county assessed valuation. As a result, the mortgagor may lend more money to the homeowner than in a conventional reverse mortgage. The reverse mortgagor extends 60% of the valuation amount. Thus, based on the FHA assessment as in conventional reverse mortgages, the mortgage amount is $180,000, while based on the fair market value under the present invention, the mortgage amount is $300,000. Upon the mortgagor's determination of the homeowner's home value, the homeowner concurrently executes the reverse mortgage and life insurance policy, which includes a death benefit for this plan will be equal to 100% of the applicant's home value at the time of closing. The mortgagor undertakes payment of the life insurance premiums, and thus, the homeowner name the lender as the beneficiary to the death benefit. The 40% of the borrower's home value embodied in the death benefit will provide the ongoing financial ability for the mortgagor to offset the cost of the premiums paid. The death benefit on this policy grows at a rate equal to the prevailing interest rates charged by the lender on designated reverse mortgage products. The net effect of the borrower assigning the death benefit to the lender is an immediate and direct resolution of debt , without action by the homeowner's heir upon the homeowner's death.

It should be noted that the embodiments of the present invention may be adapted to be in full compliance with any and all windfall profit laws, either state or federal. It should also be noted that the system and method of the present invention may be used in conjunction with various financial instruments and financial processes, such as loans, line of credits, home equity loans, home financing, mortgages, secured debt, and securitization,

EXAMPLE PROCESSING SYSTEM COMPONENTS AND FUNCTIONALITY

The present invention may be implemented using hardware, software, or a combination thereof and may be implemented in one or more computer systems or other processing systems. In one embodiment, the invention is directed toward one or more computer systems capable of carrying out the functionality described herein. An example of such a computer system is shown in Fig. 7.

Computer system 200 includes one or more processors, such as processor 204. The processor 204 is connected to a communication infrastructure 206 (e.g., a communications bus, cross-over bar, or network). Various software embodiments are described in terms of this exemplary computer system. After reading this description, it will become apparent to a person skilled in the relevant art(s) how to implement the invention using other computer systems and/or architectures. Computer system 200 can include a display interface 202 that forwards graphics, text, and other data from the communication infrastructure 206 (or from a frame buffer not shown) for display on the display unit 230. Computer system 200 also includes a main memory 208, preferably random access memory (RAM), and may also include a secondary memory 210. The secondary memory 210 may include, for example, a hard disk drive 212 and/or a removable storage drive 214, representing a floppy disk drive, a magnetic tape drive, an optical disk drive, etc. The removable storage drive 214 reads from and/or writes to a removable storage unit 218 in a well-known manner. Removable storage unit 218, represents a floppy disk, magnetic tape, optical disk, etc., which is read by and written to removable storage drive 214. As will be appreciated, the removable storage unit 218 includes a computer usable storage medium having stored therein computer software and/or data.

In alternative embodiments, secondary memory 210 may include other similar devices for allowing computer programs or other instructions to be loaded into computer system 200. Such devices may include, for example, a removable storage unit 222 and an interface 220. Examples of such may include a program cartridge and cartridge interface (such as that found in video game devices), a removable memory chip (such as an erasable programmable read only memory (EPROM), or programmable read only memory (PROM)) and associated socket, and other removable storage units 222 and interfaces 220, which allow software and data to be transferred from the removable storage unit 222 to computer system 200.

Computer system 200 may also include a communications interface 224. Communications interface 224 allows software and data to be transferred between computer system 200 and external devices. Examples of communications interface 224 may include a modem, a network interface (such as an Ethernet card), a communications port, a Personal Computer Memory Card International Association (PCMCIA) slot and card, etc. Software and data transferred via communications interface 224 are in the form of signals 228, which may be electronic, electromagnetic, optical or other signals capable of being received by communications interface 224. These signals 228 are provided to communications interface 224 via a communications path {e.g., channel) 226. This path 226 carries signals 228 and may be implemented using wire or cable, fiber optics, a telephone line, a cellular link, a radio frequency (RF) link and/or other communications channels. In this document, the terms "computer program medium" and "computer usable medium" are used to refer generally to media such as a removable storage drive 214, a hard disk installed in hard disk drive 212, and signals 228. These computer program products provide software to the computer system 200. The invention is directed to such computer program products.

Computer programs (also referred to as computer control logic) are stored in main memory 208 and/or secondary memory 210. Computer programs may also be received via communications interface 224. Such computer programs, when executed, enable the computer system 200 to perform the features of the present invention, as discussed herein. In particular, the computer programs, when executed, enable the processor 204 to perform the features of the present invention. Accordingly, such computer programs represent controllers of the computer system 200.

In an embodiment where the invention is implemented using software, the software may be stored in a computer program product and loaded into computer system 200 using removable storage drive 214, hard drive 212, or communications interface 224. The control logic (software), when executed by the processor 204, causes the processor 204 to perform the functions of the invention as described herein. In another embodiment, the invention is implemented primarily in hardware using, for example, hardware components, such as application specific integrated circuits (ASICs). Implementation of the hardware state machine so as to perform the functions described herein will be apparent to persons skilled in the relevant art(s).

In yet another embodiment, the invention is implemented using a combination of both hardware and software.

As shown in FIG. 8, in an embodiment of the present invention, the multimedia application operates, for example, on a network. A user 40, such as an applicant or application processor inputs information, via a terminal 41, such as a personal computer (PC), minicomputer, mainframe computer, microcomputer, telephone device, personal digital assistant (PDA), or other device having a processor and input capability.

As further shown in FIG. 8, in one embodiment, the terminal 41 is coupled to a server 43, such as a PC, minicomputer, mainframe computer, microcomputer, or other device having a processor and a repository for data or connection to a repository for maintained data, via a network 44, such as the Internet, via couplings 45, 46, such as wired, wireless, or fiber optic connections.

Although preferred embodiments of the invention have been described in the foregoing description, it will be understood that the invention is not limited to the specific embodiments disclosed herein but is capable of numerous modifications by one of ordinary skill in the art. It will be understood that the materials used and technological details may be slightly different or modified from the descriptions herein without departing from the methods and compositions disclosed and taught by the present invention. Many variations and modifications will be apparent to those of ordinary skill in the art.

Claims

THE CLAIMSWhat is claimed is:

1. A method of providing reverse mortgage-related lending, the method comprising: arranging financing from a financier to a reverse interest-eligible party with an insurable interest; providing financing to the party; arranging a life insurance policy from an insurance provider to the party; reconciling insurance premiums accountable to the life insurance policy by the financier; and satisfying the party's financing debt through a death benefit received from the life insurance policy.

2. The method of claim 1, wherein the reverse-interest eligible party is a party holding a reverse mortgage.

3. The method of claim 2, wherein the party obtains the reverse mortgage prior to the arranging of the financing.

4. The method of claim 2, wherein the financing is non-recourse.

5. The method of claim 1 , wherein the arranging of the financing is substantially concurrent with the arranging of the reverse mortgage.

6. The method of claim 5, wherein the financing is recourse.

7. The method of claim 5, wherein the financier provides the reverse mortgage and the financing.

8. The method of claim 5, wherein the financing is secured by the home that is subject to the reverse mortgage.

9. The method of claim 2, wherein the insurable interest is debt created from the financing.

10. The method of claim 9, wherein the insurable interest is equal to an amount of the reverse mortgage.

11. The method of claim 1 , wherein the eligibility of the party is determined by reverse mortgage regulations, including federal regulations, state regulations, county regulations, city regulations, or a combination thereof.

12. The method of claim 1, wherein the financing includes at least a monetary loan of cash, a credit line, one or more annual payments, or a combination thereof.

13. The method of claim 12, wherein the line of credit and the one or more annual payments earn interest upon undistributed financing.

14. The method of claim 13, wherein financing distributed to the party generates interest.

15. The method of claim 2, wherein the financing is in an amount less than the total value of the home of the party that is subject to the reverse mortgage, with total value of the home being determined independent of county assessments.

16. The method of claim 1, wherein the life insurance policy designates the financier as the beneficiary of the death benefit.

17. The method of claim 2, wherein the death benefit equals the full value of the home of the party that is subject to the reverse mortgage.

18. The method of claim 17, wherein the death benefit absolves the party of debt incurred by the financing.

19. The method of claim 18, wherein the death benefit also accrues interest at a rate at least equal to the interest rate of the reverse mortgage financing.

20. The method of claim 1, wherein the party consists of an individual and spouse of the individual, and the financing is not due until the deaths of both the individual and the spouse.

21. A system for providing reverse mortgage-related lending comprising: a processing system configured and adapted to communicate with a plurality of computers, wherein the processing system is arranged to accept input of: financing from a financier to a reverse-mortgage eligible party with an insurable interest; a life insurance policy based on the insurable interest providing a death benefit from an insurance provider to the party; an insurance premium accountable to the life insurance policy and satisfied by the financier; and debt incurred from the financing through death benefits from the matured life insurance policy.

22. An article of manufacture comprising: a computer readable medium; and a data structure stored thereon adapted and configured to signals, wherein the data structure comprises a computer readable system for providing reverse mortgage-related lending comprising: arranging financing from a financier to an eligible party with an insurable interest; providing financing to the party; arranging a life insurance policy from an insurance provider to the party; reconciling insurance premiums accountable to the life insurance policy; and satisfying the party's financing debt through death benefits from the life insurance policy.

23. A system for providing reverse mortgage-related lending comprising: a means for arranging financing from a financier to an eligible party with an insurable interest; a means for providing financing to the party; a means for arranging a life insurance policy from an insurance provider to the party; a means for reconciling insurance premiums accountable to the life insurance policy; and

-v. a means for satisfying the party's financing debt through death benefits from the life insurance policy.