Figure Is On a Mission

How blockchain can level the playing field and benefit the underserved

If you’ve been following blockchain technology, then you know it will have two powerful primary impacts: displacing trust with truth and disintermediating exchange. Figure is harnessing this power to democratize access and lower the barriers to financial services broadly. For the mortgage ecosystem, this means using technology to promote a stronger, more efficient, and more inclusive housing finance system — disintermediation and shared truth as the means to level the playing field.

Trust — and why truth matters

For most Americans, homeownership is the surest and most accessible path to building wealth. Historically, that path has been narrow, but ever-widening — from the development of federally-backed mortgages to the enshrinement of housing access as a civil right to the agency-led expansion of the secondary market. Technology’s initial disruption of the housing finance industry opened the door further, making credit accessible to a broader customer base and flattening costs in a siloed industry.

Despite those gains, there’s still a worrisome wealth and homeownership gap. The global financial crisis led to a significant erosion of trust between underserved communities and the mortgage industry.

Any effort to close the gap and bring disenfranchised borrowers back into the market, then, must include rebuilding trust with currently underserved and historically excluded communities. Rebuilding that trust — and, ultimately, transforming that trust into truth — is core to Figure’s mission.

This fundamental trust gap is one of the industry’s major problems that Figure and Provenance Blockchain can help solve.

A mortgage’s life cycle is complex. After closing, a borrower gets a few letters and is handed off between servicers, and then eventually everyone but the customer is two or three times removed from the initial transaction. Across these transfers, loan files are separated, copied, and shipped, and documents and data are added to or removed from the pile. Notes are lost, payments are misapplied, borrowers names are changed, credit is misreported, and the borrower is just along for the ride.

With that chaotic backdrop — and in the shadow of the litigation, consent orders, negative press following the financial crisis — a borrower’s lack of trust in the existing mortgage lending ecosystem is unsurprising.

Blockchain’s foundational purpose is the creation of an immutable record for the life of a digital asset, such as a mortgage evidenced by an electronic promissory note. What that means for mortgages is that the entire scope of a loan — origination records like the eNote and underwriting data; transaction records for loan transfers; servicing and repayment data — can be digitized and organized within a unique digital asset that can be registered and tracked on a blockchain.

Leveraging the Provenance Blockchain, Figure has built a network of integrated applications that facilitate the creation, exchange, and maintenance of digital mortgage assets. Every step in that asset’s growth — from the execution of the eNote to the borrower’s final payment — can be recorded as an immutable and verifiable entry in the blockchain-based asset history, allowing any party involved, including the borrower, to confirm the validity of the loan and its history.

For the borrower in particular, blockchain promises speed (real-time payments and immutable records thereof), transparency (access to digital registries like DART for up-to-date information on their loan ownership and history), and power (control of financial data). And with financial institutions transacting more efficiently with these digital assets — higher velocity, shared access to the immutable asset record, and reduced counterparty risk — the end result is better borrower experience and, ultimately, better prices for consumers.

In large part, a trust gap is an information gap. And blockchain’s transparency and immutability can bridge that information and trust gap to ensure speed, efficiency and accuracy for the customer and all parties across the ecosystem.

Reducing Cost and Increasing Access to Markets through Disintermediation

The corollary to blockchain’s replacement of trust with truth is that, if everyone has access to the same information and technology, the exchange of assets on blockchain can be truly bilateral, without the need for marketplace intermediaries.

Figure’s mortgage ecosystem built on Provenance Blockchain allows instant settlement of asset sales and pledges with automated transfer of control and without the need for disconnected intermediary systems to confirm the transactions. And the future of this ecosystem is not just disintermediating the mortgage asset marketplace — but disintermediating access to that marketplace and its counterparties, and to technology more broadly.

Tech-forward mortgage companies, leveraging access to non-deposit loan funding and powerful technology, have exploded the reach of the origination industry. And Figure’s complimentary blockchain-powered tools will allow these companies to accelerate their capital and capability to serve more consumers more efficiently.

But for the smaller financial institutions serving critical market segments that lack the same killer resources, the applications on Provenance Blockchain — including easy eNote and asset generation, intuitive portfolio management applications, real-time marketplaces, DART’s integrated registry, and instant payment rails — can supercharge origination power and delivery efficiency.

Access to a powerful tool like a blockchain marketplace also means access to the parties on the other sides of transactions. Where all parties are working from the same, validated and immutable data sets, and with the decreased settlement risk and increasingly consistent covenants, the marketplace can bring a broader set of lenders, financiers, and investors together in a way that better serves the needs of all market participants.

So, for example, smaller community-based lenders can access a streamlined connection to new financing sources — and, likewise, those financiers can connect to new lenders — with the greater confidence that comes from operating on shared truth.

Ultimately, disintermediated access to more efficient and inclusive markets levels the playing field for originators of all sizes. That access, and the technology that enables it, will allow the industry to serve all of its market segments more efficiently — which, in turn, levels the playing field for all borrowers to access the capital critical to homeownership.

ABOUT THE AUTHORS

Chris Karlsson is Senior Counsel at Figure Technologies.

Leah Price is Director of Lending Ecosystem at Figure Technologies.