Blockchain is generating a lot of interest—and a lot of misunderstanding. This technology primarily can record and monitor transactions in a distributed ledger (a decentralized database). Each block is a record of new transactions added to the previous block to form a chain of blocks, hence the name blockchain. Global spending on blockchain technologies will reach $11.7 billion by 2022. Transactions are recorded in blocks in real-time and are viewable to everyone on the network who has authorization. Because each transaction block is related linearly to the preceding ones, these transactions are tamper-proof provided conditions are agreed upon and put into the ledger. Real-time transaction recording, complete visibility and high-security all of these elements are all required by mortgage financing and servicing businesses.
From loan origination to loan servicing, the lending and mortgage servicing procedures can be high-risk and low-trust. Any method that reduces that risk and improves trust levels should be considered. When we hear the phrases blockchain and mortgage, we usually think of using cryptocurrency to buy a house or a piece of property. Beyond that, however, blockchain technology solutions can benefit the real estate market, particularly in terms of mortgage operations. Perhaps not in the ways you’d anticipate. Attorneys prepare legal documents, title companies conduct title searches, and underwriters assess the loan’s risk. It makes the mortgage application process arduous and time-consuming for consumers. The use of Blockchain technology could help to support and optimize mortgage lending. Business process improvement software is frequently compared to technology. Indeed, it has the potential to improve the mortgage process.
The Mortgage Industry’s First Look at Blockchain Technology
As a transparent, distributed ledger, blockchain can help boost transparency, traceability, and recordkeeping across the mortgage process. Establishing this secure information chain would aid in resolving difficulties with document transfers between parties and eliminate mortgage fraud. Blockchain technology can fundamentally alter how people acquire a property and how financial institutions handle mortgages. For example, the technology might cut process costs and complexity, create infallible and incorruptible transaction records, and enable near-instantaneous settlement.” In addition to mortgages, blockchain technology could help with various other areas of the lending and home-buying process.
Document Tracking and Record-Keeping Made Easier
When a buyer applies for a mortgage, several people — lenders, credit companies, bank employees, and other third-party agents — may need access to the buyer’s personal information and financial data to assess whether the loan should be approved. Email or fax is the most common method of transmitting these papers, with one party asking for access to another. It may take some days for the documents to be transferred, and a signature is necessary to confirm receipt.
This manual record monitoring procedure is inefficient and exposes records to the risk of being misplaced or lost due to human mistakes. Any tracking issues could be overcome with blockchain technology, and the flow of papers from one party to another may be streamlined with digital IDs and automated tracking and updating. Due to the decentralized characteristics of blockchain, each participant has access to a similar record of data. They can access all the information whenever they need it in real-time, without going through complicated handoff processes if they have the correct permissions.
It also eliminates the use of paper-based documentation. It substitutes them with a single information source. Both parties have real-time access to this source of data for validation. A middleman does not manage the transaction. There are no stacks of documentation to shuffle between the numerous parties participating in the process. It drastically reduces the amount of time it takes for things to happen.
Mortgage Fraud: Lessening the Chances
Mortgage lending fraud can be considerably reduced, if not eliminated, using blockchain technology. One of the most economically powerful industries is real estate. As a result, it’s perfect for con artists. Furthermore, the usual documentation process provides scammers with areas of failure and access to false documents. It’s difficult to file phoney paperwork or tamper with financial records because the data on the blockchain database is encrypted. As a result, this information is far more secure — and thus, anyone attempting to conduct fraud is much less likely to be able to tamper with it. Blockchain would help decrease the use of false documents to perpetrate these frauds by putting mechanisms in place to validate inputs. Furthermore, if suspicion of document manipulation occurs during the process, it is simple to track and offer indisputable real estate data about the information’s origins to dispel the suspicion.
Contracts are becoming more intelligent
Smart contracts can be created and supported using blockchain technology during the mortgage process. On the blockchain, smart contracts are self-executing contracts. Developers write the provisions of a business agreement in lines of code. Furthermore, it is self-contained and does not require human involvement.
With their electronic signatures, all parties confirm that these contracts are valid. When something specific happens, changes are conceivable, suggesting that contracts are produced automatically and in real-time — with the inclusions and exclusions required for that transaction. You can use the code to determine when and how to transmit money for the down payment or to automate the return of earnest money if a transaction falls through.
If all of the conditions are met, the transaction is automatically executed and completed. During the procedure, both parties are notified when key milestones are reached when a buyer pays a down payment. These smart contracts could be helpful in a variety of situations. For example, intelligent contract solutions could be beneficial when loans are sold into mortgage-backed security pools for investors to buy. Some loans are not eligible for this application. Any loans that do not satisfy the requirements based on the code can be automatically excluded using blockchain technology and smart contracts.
To Sum it Up
Outmoded mortgage applications need a lot of documentation and can take 45 to 60 days to finish. The usual mortgage application is 500 pages long, according to a PWC analysis. This report was evaluated by several different intermediaries, including appraisers, brokers, agents, attorneys, underwriters, and others. However, transactions are always speedier when the middle man is removed, which there are many in the mortgage process. This is precisely what a blockchain-based mortgage agreement provides while also allowing lenders and purchasers to communicate directly.