The Monetization & Securitization of Credit Scores

Schyller Hall

BORROWER SMALL BUSINESS OWNER

• Poor credit • Wants lower rate

• Good credit • Needs liquidity• Wants some cash for startup• (monthly income or lump sum)

My Company provides both

650 FICO SCORE Qualifies for $100,000 Loan @ 10%

780 FICO SCORE Qualifies for $100,000 Loan @ 5%(If she so desired)

Borrower

Entrepreneur

With Entrepreneur As Cosignatory:

Borrower qualifies for: $100,000 Loan @ 7%

Borrower & Entrepreneur

TogetherBorrower Qualifies for $100,000 Loan @ 7%

BankBank Loans

My Company

$100,000 @ 7%My

Company

Borrower

My CompanyLends Borrower

$100,000 @ 8.5%

Savings And Payouts

Borrower

Entrepreneur

@ 10%, 30-Year Loan, PMT= $877.57

@ 8.5%, 30-Year Loan, PMT= $768.91

Borrower saves $108.66 Per Month

What Borrower Would Have Paid

What Borrower Actually Pays

Over Life Of Loan:

$39,117.60

My Company

My Company nets $103.61 Per Month

Lending @ 8.5%, receiving $768.91 Per Month

Borrowing @ 7.0%, paying $665.30 Per MonthPV of PMTs (discounted 5% for 30 years) :

$8,630.29

My Company

My Company gets a percentage of the spread

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Alternatively…

Entrepreneur

My Company

Lending @ 8.5%, receiving $768.91 Per Month

NPV of PMTs$64.047.04 - $50,000 = $14.047.04

My Company

My Company gets a percentage of the spread

Sell the PV of This Stream of Cash Flows as some kind of ABS:

FV = $276,807.60

PV (discounted 5% over 30 years) = $64,047.04

Entrepreneur gets a percentage of the spread

Borrowing @ 7.0%, paying $665.30 Per Month

PV = $55,416.74From here, I can transfer the obligation: Transferring the monthly payments of $665.30 to another in exchange for a lump sum, say, $45,000 to $50,000.

From Previous Page…

My Company

NPV of PMTs$64,047.04 - $50,000 = $14.047.04

$4,047.04

$10,000.00

Entrepreneur

My Company’s monthly incoming cash flows of $768.91 are sold as an ABS for $64,047.04.

My Company’s monthly obligations of $665.30 are transferred another borrower who receives a sum of $50,000.

Other Options

There are many other varieties in which the payments and cash flows could be structured, listed in the preceding slides are only a few of the possibilities.

• Brings together homebuyers and individuals who need or want cash quickly

• Receives fees from both parties in addition to the spread

• Enters into CDS contract to hedge against default

• Net Profit = $4,047.04 + fees from homebuyer and counterparty – (CDS) – Transactions Costs.

• Potentially in and out of the transaction in a matter of hours.

• Even 1 deal per day would generate significant cash flows.

Entrepreneur

My Company

• Receives $10,000 – My Company’s fee (TBD)

• Ideally, cosignatory will successfully petition to remove him/herself from Loan after 2-3 years of consistent payments from Borrower.

• Rather than taking out a business loan on their own, this solution is advantageous because its essentially free money.• Cosignatory receives financing

without the requisite monthly payments.

In ConclusionBorrower

• Homeowner receives a lower interest rate on his home mortgage.

• This is an easy sale, even if fees are assessed on a % loan value or a straight, fee, say $1,000.

• Paying $1000 now to save nearly $40,000 over the life of the loan

• Even for those who plan on moving within a few years, it the structure will pay for itself within a year. (in this example)

Additional Considerations

Contingencies for re-financing situations either for existing borrowers or first-

time borrowers.

The potential for “entrepreneur” customers to use the process to accrue

multiple lump sums of cash acting as cosignatory for multiple deals

Borrowers who require/request more than one cosignatory (possible?)

Many others that will doubtless merit further examination

Again, this is a brief overview of the overall business process.

OR…

Entrepreneur

Lending @ 8.5%, receiving $768.91 Per Month

NPV of PMTs$64.047.04 – Entrepreneur’s Cut “X” = $My Share

My Company

Sell the PV of This Stream of Cash Flows as some kind of ABS:

FV = $276,807.60

PV (discounted 5% over 30 years) = $64,047.04

Entrepreneur gets a percentage of the spread

650 FICO SCORE Qualifies for $100,000 Loan @ 10%

Lends From Its Own Pocket $100,000 @ 8.5%, brokering a mortgage for 7% and pocketingthe difference.

Borrower

Borrower receives better interest on his loan, I still make a profit, no need to

sell any product to Entrepreneur…but returns are smaller,

potentially less lucrative for investors.My

Company

OR…