The Mortgage Industry and Does it Need a Blockchain Solution

The blockchain technology has been causing major buzz across several industries, and especially within the Fin-Tech sector. And now the mortgage industry is also joining the blockchain bandwagon. The appeal of the blockchain technology to the mortgage industry is quite juicy-the ability to disintermediate and reduce the friction inherent in consumers’ mortgage journey is hard to resist.

Forecasts, statistics, and estimates relating to the mortgage market indicate that it is largely a growing industry. In fact, studies shows that in the second quarter of 2017, real estate values in the United States surpassed their pre-housing crisis levels. The total value of real estate owned by individuals in the United States is $24 trillion and total mortgages currently stands at $10 trillion. The number of new mortgages that are originated each year stands at $2.9 trillion while the amount of fees paid by the mortgage ecosystem to mortgage technology providers each year is at $100 billion. On the other hand, a survey on the UK mortgage market found that the gross mortgage lending for the total UK market stood at £22.2 billion in May 2018, 8.8% higher than a year earlier.

In addition, the percentage of mortgages in arrears continues to drop quarter on quarter in the UK which suggests an improvement in lending decisions. Indeed in the same CEO survey, 95% of CEOs now say they see technological disruption as an opportunity rather than a threat with over half saying they are actively disrupting their own sector rather than waiting for competitors to move first.

A Closer Look at the challenges in the Mortgage Industry

There is no arguing that the real estate lending industry remains firmly entrenched in a model that raises the cost of transactions significantly and the time needed to process mortgage applications. Here is a detailed look at some of the challenges:

· Mountains of documents are required by brokers and lenders today for anyone looking to buy a home. Besides the number of intermediaries involved in mortgage processing significantly increases the time needed to complete the process. In the U.S., for instance, the number of intermediaries involved in loan processing is somewhat appalling and as a matter of fact, mortgages in the U.S. can take up to two full months to be approved. A mortgage application normally goes through financial services, realtors, lawyers, and more in the time between accepting an offer and closing a sale. Each of these steps includes fees and adds days to an already long process.

· Automation and Compliance are what homebuyers expect lenders to focus on but homebuyers are constantly being asked for information that the lender can obtain instantly today.

· Verification, Accountability and Security of your sensitive personal financial information is a must but not always the case today. Trust in financial institutions has been declining over time, but for now customers still have the expectation that the large banks and other large lending institutions are stable, secure, and safe. This trust that is associated with banks and other lending institutions is not guaranteed going forward. In fact, generational differences already exist — for instance, in North America Gen Y customers are far less trusting of their primary bank compared with other age groups. And given that Gen Y represents a significant market, and their digital savviness and high expectations around customer experience means that the mortgage industry need to leverage the best of technologies to address these issues. And besides, a centralised ledger which all lending firms rely on can potentially be a centralised point of failure and even though some of them mitigate this flaw through backups and solid cybersecurity practices; however, the risk is relatively higher compared to a distributed ledger technology.

· Accurate and efficient underwriting is the goal of any broker or lender but it doesn’t happen in today’s banking environment. One of the largest sources of delays in mortgage applications are the errors in the paper-based documentation and this also impacts on the trust from consumers.

Blockchain- Improving the Mortgage Journey

While fin-techs have been working hard to resolve pain points in the mortgage journey — from product selection to application and drawdown — it is the blockchain technology that holds the most potential for change in the market. In the mortgage market, the five metrics that matter are brand, price, accessibility, customer experience and speed of service and the blockchain promises to offer several advantages that seek to address all these five metrics and thus improve the current model.

The blockchain technology will improve transparency in the mortgage sector. This distributed ledger technology (DLT) provides two major upgrades to the current model-it decentralizes the storage of information, and it makes all transactions immediately available across all nodes of the chain. This means that companies and lenders cannot in any way manipulate information or engage in shadowy practices with data, as it is shared across an entire network and not under their exclusive supervision. Also, this will make transactions to become public record in a ledger that is updated simultaneously and cannot be manipulated.

One critical component of the mortgage system in the US market is the Mortgage Electronic Registration Systems (MERS) created in the 1990s, which created a private system wherein underlying mortgages were assigned and reassigned outside of the traditional county-level recording process. The legitimacy and overall accuracy of this alternative recording system has faced serious challenges with the onset of the mortgage crisis: as the US courts flood with foreclosure cases, the inadequacies of the MERS model are being exposed, and both local and federal governments have begun to take action through suits of their own and the refusal (in some jurisdictions) of the courts to recognize the legal authority of MERS assignments. Legal inconsistencies in MERS originally appeared trivial, but they may reflect dysfunctionality in the entire US mortgage industry.

The other major aspect blockchain can help with is disintermediation. Currently, the mortgage approval process can cost thousands of dollars before you even start paying for the loan itself. Disintermediation is the core feature which drives the benefits associated with the blockchain technology. Systems that have centralised ledgers normally require the participation of a trusted third party to maintain a record of transactions between organisations. A distributed ledger overcomes the need for a third party, which can be a significant benefit where there is no clear trusted central organisation, or if the costs of intermediation are high.

Additionally, Smart contacts can also be embedded in blockchain networks and this can improve on automation and compliance aspect. Smart contracts are commonly agreed terms between parties which will automatically execute once certain conditions are met.

This opens up the broader mortgage secondary market by providing verified, accurate underwriting metadata access to mortgage traders, aggregators and securitizartion experts, which in turn grows the primary origination pipeline significantly. Trusted, secure, and verified access to key underwriting metadata has always been the bottleneck for the $90 trillion secondary market of the mortgage industry.

The blockchain revolution has seen several platforms come into the picture in a bid to threaten the status quo and change the way mortgages operate. One such platform is MorLabs. MorLabs is a next-generation blockchain-based mortgage technology platform for consumers, real estate agents, mortgage brokers, lenders, aggregators, and securitization institutions.

The platform seeks to reduce the mortgage underwriting process from weeks to minutes, and as a result, undercutting the current ecosystem while saving originators, traders, and mortgage investors billions in opportunity costs and lost revenue. MorLabs Blockchain Labs technology will be automated, accurate, fully compliant, secure, user-friendly and robust.

The platform’s focus is to assist all participants in the U.S. residential mortgage industry utilizing a blockchain-based platform that ensures:

· Security, verification, and accountability of all mortgage-related documents and information.

· Faster + more robust + accurate underwriting engine which equals more mortgages and this means improved home ownership.

· Less document clutter which results to ease of application and faster closing times.

MorLabs consists of a proven executive team with decades of experience in mortgage lending and technology having operated a mortgage technology company for over 10 years together.

Blockchain- Creating a Supportive Ecosystem for the Mortgage Industry

The backdrop to today’s mortgage industry is challenging. The industry has gone through several distinct phases of evolution that have allowed it to reach its current status as the largest and most complex financing market all over the world. And now thanks to the MorLabs blockchain-technology platform, the mortgage sector will now have six important competitive advantages for the near future:

· First to Market with a complete, end-to-end mortgage blockchain solution.

· One Application whereby home buyers will only need to authorize one application that can be accessed by multiple lenders.

· Underwriting Prowess that ensures ability to repay (ATR) the loan despite blemishes in credit.

· Speed to Closing and this means that the elimination of excess documentation and underwriting automation will significantly reduce the time to close.

· Cost Reduction whereby the ability to automatically pull the home buyers critical information once and store it for multiple lenders and aggregators will reduce costs for all homebuyers.

· Security and this means that all documents and information will be secured, verified, and accountable on the blockchain foundation.

The bottom line here is that the blockchain technology will enable lenders to deliver a viable customer experience from quality lending pools that have always been too complex or cumbersome to process.