Decentralized Information Differentiation for Mortgage Risk Sharing
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Solution Overview
Problem
Current methods for mitigating home buyer risk lead to higher interest rates for those in the highest risk class, disproportionately burdening them with mortgage payments, and fail to effectively share risk across all strata of homeowners.
Innovation Solution
A platform that adjusts minimum retained equity (MRE) rather than pricing to accommodate borrower risk profiles, allowing impact investors to participate alongside return-oriented investors, with a risk pool and smart contracts to manage equity and risk distribution.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If risk mitigation methods adjust pricing (interest rates) to accommodate borrower risk profiles, then risk is managed for lenders, but higher interest rates are imposed on high-risk borrowers, disproportionately burdening them
Solution Approach 1:
The patent segments the risk pool by creating distinct equity tiers (first tier and second tier) with different risk profiles and return characteristics. This segmentation allows impact investors to participate in specific risk layers rather than uniformly pricing all borrowers, thereby managing risk effectively without imposing disproportionate burdens on high-risk borrowers through uniformly high interest rates
Solution Approach 2:
The patent changes the fundamental parameter from interest rate pricing to minimum retained equity (MRE) adjustments. Instead of increasing interest rates for high-risk borrowers, the system adjusts the MRE requirement based on risk profile, which levels the playing field by ensuring lower monthly payments for homeowners while still achieving risk management objectives
2Reliability
If traditional risk mitigation methods are used, then lender risk is managed through pricing, but risk is not effectively shared across all strata of homeowners
Solution Approach 1:
The patent creates a segmented risk pool structure with multiple equity tiers that can be independently managed and invested in. This segmentation enables different strata of homeowners to contribute to and benefit from specific risk layers, achieving effective risk sharing across all homeowner strata while maintaining lender risk management
Solution Approach 2:
The segmented risk pool structure serves multiple functions simultaneously: it manages lender risk, enables risk sharing across homeowner strata, provides investment opportunities for impact investors, and ensures affordable monthly payments for borrowers. This multi-functionality resolves the contradiction between risk management and risk sharing
3Ease of operation
If minimum retained equity (MRE) is adjusted to accommodate borrower risk profiles, then monthly payments are leveled for homeowners, but complex risk pool management structures are required
Solution Approach 1:
The patent implements self-service through smart contracts that automatically execute risk pool management functions. The smart contracts autonomously handle MRE adjustments, risk assessments, and payment distributions based on pre-programmed criteria, reducing the need for manual intervention and complex administrative structures while maintaining payment affordability
Solution Approach 2:
The patent introduces smart contracts as intermediaries between borrowers, lenders, and impact investors. These smart contracts mediate the complex interactions in the segmented risk pool, automating risk management and payment calculations, thereby simplifying the overall system operation while maintaining affordability for homeowners
Data Source
AI summary
Methods and systems for transferring information, comprising: transmitting, by a first computing device of the first computing system, a first network function request to a decentralized network, the first network function request including first information; and transmitting, by a second computing device of the second computing system, a second network function request to the decentralized network, the second network function request including second information.