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How Blockchain Can Improve Mortgage Systems

Insights» Automation in Today’s Evolving Society

July 31, 2017by Originate Report Team

Blockchain technology got its start by providing a solution for impenetrable, permanent transactions within the digital currency markets. However, more business sectors are now looking into how the relatively new software can help provide a secure and transparent solution for a myriad of financial, industrial, and commercial applications.
One industry looking to capitalize on the speed, security, and reliability of blockchain technology is the mortgage sector. Mortgage industry experts are looking to block chain to help improve efficiencies throughout the mortgage process. Of particular appeal is the fact that blockchain is a peer-to-peer (P2P) exchange, meaning that it does not require a separate validation or handoff from a third-party to the transaction.

How can blockchain help make the mortgage process more efficient? Well, for starters, it can improve transaction times, reduce the chance of human error, and lower the overall cost of processing a loan file. All credit transaction information relies on the integrity of the source data.
With blockchain, the mortgage data is validated and transferred from the source to the intended recipient, all done securely and incorruptible, without third-party interference.

Loan Origination
Today’s loan process, while evolving into the digital realm, is still filled with transactional inefficiencies. The human interface between a hard file and mortgage software, unfortunately, includes the high probability of error. Blockchain could help remove risk and restore transparency to the process.
Blockchain has features such as distributed ledgers that could help when a file is moved between ledgers. The technology could allow for the immediate update of records and enable users to schedule transactions to occur based on certain timetables or established protocols.

Loan Fulfillment
Loan fulfillment is rife with the risk of error. Disclosures are a fact of life in the mortgage business, and missing a disclosure date could be the difference between a funded file and a do-over. Blockchain, with its smart contracts and unalterable data feature, can provide time-stamped proof that disclosures were sent within three business days. Smart contracts could be written to speed up the process and provide the client with real-time delivery of a loan agreement.

Secondary Market
The mortgage securitization process is complex, and as we saw after the housing crisis, corrupted through human error. Blockchain can improve the secondary market process by offering smart contracts which can validate mortgage data, confirm pool requirements, and notify each concerned party all within a single transaction.
The securitization process, which relies so heavily on accurate data, can utilize blockchain to remove third-party interference and ensure the integrity of MISMO mortgage data. The technology could also be used to transfer mortgage servicing rights on sold loans, being especially helpful in streamlining the process of transferring notes during the secondary process. Improved transparency and instilling confidence in the integrity of the transaction will speed up the secondary market process and result in more liquidity quickly flowing back into lending markets.

Benefit to Borrowers
Borrowers will also benefit from the use of blockchain through improved efficiencies in the loan process. There are real costs associated with the processing of mortgage files. Each time a file is handled, be it the processor, underwriter, escrow, title, or funding, there is a cost incurred. Blockchain technology could remove or streamline some of the processes associated with the loan, reducing costs, and allowing the lender to pass the savings on to the borrower.

There is more to be done before blockchain is fully integrated within the mortgage process, but these days, technology moves at the speed of light. The financial services sector is showing great interest in the software and its abilities. It is our hope that market forces will ultimately move the blockchain revolution forward.
Find out more about Blockchain in our September 2017 edition of Originate Report!