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Optimizing Credit Scores for Better Loan Rates: A Profitable Solution

This financial guide explores how to leverage credit scores to secure lower loan rates and generate profits by acting as a middleman between borrowers and investors. Learn about innovative strategies in monetizing credit scores to benefit borrowers, entrepreneurs, and your company.

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Optimizing Credit Scores for Better Loan Rates: A Profitable Solution

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  1. The Monetization & Securitization of Credit Scores Schyller Hall

  2. 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

  3. Borrower 650 FICO SCORE Qualifies for $100,000 Loan @ 10% With Entrepreneur As Cosignatory: Borrower qualifies for: $100,000 Loan @ 7% Entrepreneur 780 FICO SCORE Qualifies for $100,000 Loan @ 5% (If she so desired)

  4. Borrower & Entrepreneur Borrower Together Borrower Qualifies for $100,000 Loan @ 7% • Bank My Company Lends Borrower $100,000 @ 8.5% Bank Loans My Company $100,000 @ 7% My Company

  5. Savings And Payouts What Borrower Would Have Paid Borrower What Borrower Actually Pays @ 10%, 30-Year Loan, PMT= $877.57 @ 8.5%, 30-Year Loan, PMT= $768.91 Over Life Of Loan: Borrower saves$108.66Per Month $39,117.60 Lending @ 8.5%, receiving $768.91 Per Month My Company Borrowing @ 7.0%, paying $665.30 Per Month PV of PMTs (discounted 5% for 30 years) : $8,630.29 My Company nets $103.61 Per Month My Company gets a percentage of the spread Entrepreneur gets a percentage Entrepreneur My Company

  6. Alternatively… Sell the PV of This Stream of Cash Flows as some kind of ABS: My Company Lending @ 8.5%, receiving $768.91 Per Month FV = $276,807.60 PV (discounted 5% over 30 years) = $64,047.04 Borrowing @ 7.0%, paying $665.30 Per Month PV = $55,416.74 From 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. NPV of PMTs $64.047.04 - $50,000 = $14.047.04 My Company gets a percentage of the spread Entrepreneur gets a percentage of the spread Entrepreneur My Company

  7. From Previous Page… My Company $4,047.04 NPV of PMTs $64,047.04 - $50,000 = $14.047.04 Entrepreneur $10,000.00 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.

  8. 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.

  9. In Conclusion Borrower Entrepreneur My Company • 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. • 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. • 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)

  10. Additional Considerations Again, this is a brief overview of the overall business process. • 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

  11. OR… Sell the PV of This Stream of Cash Flows as some kind of ABS: Lending @ 8.5%, receiving $768.91 Per Month FV = $276,807.60 PV (discounted 5% over 30 years) = $64,047.04 NPV of PMTs $64.047.04 – Entrepreneur’s Cut “X” = $My Share Entrepreneur gets a percentage of the spread Entrepreneur My Company

  12. OR… Borrower 650 FICO SCORE Qualifies for $100,000 Loan @ 10% 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 Lends From Its Own Pocket $100,000 @ 8.5%, brokering a mortgage for 7% and pocketingthe difference.

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