Benefits of Using Open Ledger Technologies for Loan Servicing
This is part of a blog series Can Blockchain Save Our Financial System?
In this blog post we review how the blockchain technology will improve the loan servicing processes for lending businesses by creating an ecosystem of all stakeholders that allows for more efficiency and faster communication.
To read our previous blog post about the benefits of loan origination on the blockchain, click here.
To learn about how Bloxable is building the most advanced debt platform using blockchain and smart contracts, visit us here.
The power of blockchain technology and cloud based access can completely transform loan processing for the lending industry. It allows the reporting process to become more frictionless, more secure and could one day become an end-to-end solution that connects all the stakeholders in the loan.
Given the high volume of trades and slow turnaround times, the mortgage businesses are already facing pressure internally and externally. Today, it takes more than 60 days for mortgage banks to process a loan.
By building a more efficient ecosystem, businesses can cut down the processing times, save money and greatly enhance the customer experience for their clients.
More Efficient Customer Identification
One avenue that blockchain technology can be used in is member identification. AuraBlocks, a blockchain-based tech company, is testing the Oracle Cloud Blockchain for their client Biz2Credit.
Biz2Credit provides merchant cash advances for small and medium sized businesses based on credit card receipts. The AuraBlock technology allows the merchant’s account to be verified within the blockchain ledger. If the merchant wants to apply for another loan, they can use their saved information in the ledger without having to go through the verification process.
Kiran Murty, CTO of AuraBlocks, stated that there are a number of parties that come together for loan origination and servicing processes. Apart from the lender and borrower, other parties include credit card companies, credit agencies and lawyers. Information between these parties are currently being exchanged on an obsolete and inefficient workflow.
Venkatesh Bala, the chief risk officer for Biz2Credit, stated that the Oracle Blockchain Cloud service could reduce their company’s operational costs by 25 percent or $250 million in dollar terms.
Fully Transparent, Real-time Visibility
A cloud based blockchain ledger makes the record of transactions available publicly. Not only does it show a single record residing with the servicer, but every detail of every mortgage and subsequent transaction would be available on the blockchain. This would remove the need for investor reporting as everything would be already available for view.
This adds a great deal of transparency for the investors. Every time a transaction is made to the ledger, investors could become instantly aware of it. The system would record when Borrower A refinances their loan, Borrower B’s payment is rejected due to insufficient funds, Borrower C makes a principal curtailment payment or Borrower D files for bankruptcy.
The high level of transparency would help mitigate investor risk as it creates an easily auditable trail of transactions.
Other Mortgage Servicing Benefits When Using Blockchain
The home mortgage and financing industry, in particular, can benefit from blockchain technology. Some of the opportunities available for businesses in the mortgage industry are outlined below.
Many Business Uses
Mortgage businesses can apply blockchain into their operations in several ways. They can use the blockchain for loan origination as well as loan servicing. In loan origination, the distributed ledger systems of blockchain allows businesses to find out more about the intermediaries and the history of credit and collateral. In loan servicing, the blockchain lets businesses view transactions in real time and improve transparency.
An Ecosystem Built on Intermediaries
Blockchain allows mortgage lenders to design their operations as an ecosystem built on suppliers, agents, brokers, surveyors and insurers. These intermediaries help the lender in making a decision on approval and execution of the loan. Building this network on a blockchain helps speed up the process for the mortgage lender.
Credit Qualification is Becoming Digitized
Credit qualification is an important part of the mortgage lending process. The digitization of bank accounts will help improve mortgage loan approvals.
Title Registry
Blockchain allows the potential for developers to build additional layers of financial instruments such as title reports. Blockchain network creates an asset that cannot be copied or duplicated. A national registry of title reports will help businesses achieve cost reduction and higher efficiencies. It will make the process of title report verification faster, more accurate and publicly viewable.
To read the next blog post about the benefits of loan securitization using smart contracts, click here.
