In these trying times, there is a push for digital transformation by financial organizations and mortgage lenders. Blockchain technology is a game-changer in the Mortgage Industry with its data security features. In this fast-paced world, outdated traditional mortgage processes are replaced by Mortgage Blockchain technology. Mortgage Blockchain is transforming the data issues plaguing the Mortgage Industry. We have talked in our previous blog about the benefits of blockchain in the Mortgage Industry. Here, we will explore how Mortgage Blockchain is solving the Mortgage Industry’s Data Problem.
Data Problems in the Mortgage Industry
Most people feel that home mortgage processes are lengthy and tedious financial transactions. Borrowers, lenders, insurers, appraisers, underwriters, loan officers etc., depend on large amounts of data from various sources. The loan-level data is acquired inconsistently from unreliable sources. There are high chances of mortgage fraud due to data security issues. Manual entry of data, long processing time, and information about the customer's financial credibility is posing a challenge to mortgage lenders. Data challenges in the mortgage industry have increased during origination, process, and fund transfer. There are data regulation problems concerning compliance checking. The answer to these data problems is Mortgage Blockchainis bringing about Mortgage Transformation.
How is Mortgage Blockchain causing Mortgage Transformation?
Blockchain brings transparency to the mortgage process by using cryptography. Mortgage blockchain technology can synchronize mortgage transactions with the related data. The chief features of blockchain technology include:
1. Digital Ledger Technology (DLT)
Using Distributed Ledger Technology (DLT), blockchain is decentralizing all the transactions. The storage of all transactions includes electronic evidence of the mortgage process. An open, secure DLT provides accurate, real-time information. It uses blocks (records) across many nodes (computers) to record transactions.
Image 1: Blockchain technology process- increasing transparency in the mortgage market Image Source: https://www.pwc.de/en/real-estate/digital-real-estate/blockchain-in-real-estate.html
Each transaction in the mortgage blockchain is validated, verified, and combined with other transactions of other applicants. It forms a block of data. All transactions are available in a ledger. It is accessible to the parties involved in the different stages of the mortgage process in real-time. Data is encrypted, and only the parties involved in specific transactions related to their work can read or write to the ledger. DLT is simple as only a single data entry is required to streamline the mortgage process. The data is encrypted and offers no scope of tampering by companies or lenders. Transaction in the mortgage blockchain is validated, verified, and combined with other transactions. It forms a block of data. All transactions are available in a ledger. It is accessible to the parties involved in the different stages of the transaction in real-time. Data is encrypted, and only the parties involved in specific transactions related to their work can read or write to the ledger. DLT is simple as only a single data entry is required to streamline the mortgage process. The data is encrypted and offers no scope of tampering by companies and lenders.
2. Smart Contracts
Smart Contacts are codes that are programmed to automate transactions. Smart Contracts verify the loan applicant's employment, income and liabilities. The Smart contract is automatically executed based on pre-agreed terms. The parties involved in the Contracts are anonymous. Smart Contracts provides data for compliance and reporting to regulatory authorities or auditors.
Image 2: How Smart Contracts work? Image Source: https://codebrahma.com/brief-intro-smart-contracts-endless-possibilities/
Both DLT and Smart Contract features of blockchain technology are solving data problems of the mortgage industry.
Mortgage Blockchain is playing a significant role in the mortgage ecosystem by:
- Assessing loan information for mortgage issuance- is accomplished by examining the risk parameters, collection and data validation.
- Searching, validating property titles and transfers as a part of the closing and renewal process
- Completing the mortgage closing process by having interaction among lenders, title agents, and other parties
- Servicing as required by GSE’s or other noteholders by performing monthly reporting activities as well as managing non-performing loans
- Creating a securitization pool for validation of individual loans against pool parameters and managing pool updates
Mortgage Blockchain lowers the costs to borrowers with no third-party involvement during the mortgage process.
Mortgage Loan Origination System and Mortgage Blockchain
Mortgage lenders use different formats to record data. Sometimes digital records are scanned copies of print documents. Accessibility and reliability of the data are increasing the likelihood of inefficiency in loan origination. Mortgage lenders have to verify many data points such as borrower's assets, credit score and transaction history. Regulators are expecting loan-disclosing data from loan originators. The underwriting data is not standardized and requires periodic reviews.
Mortgage Blockchain provides better access to data and increases automation in Mortgage LOS. The digitally originated loan is on a ledger (in the blockchain). It is entered automatically into a smart contract. The mortgage blockchain has important underwriting information consisting of borrowers' credit score, DTI ratio, and other data. The data becomes immutable, time-stamped which reduces the risk of information loss or alteration of data. Mortgage Blockchain improves transparency, traceability and record-keeping during the mortgage process. Mortgage blockchain is disrupting the Mortgage Industry.
Image 3: Storing records in Mortgage Blockchain Image Source: https://www.stratmorgroup.com/insights_article/connecting-the-blocks-practical-applications-of-blockchain-for-the-mortgage-industry/
Mortgage blockchain can improve data security. A mortgage loan origination system can store and access loan applications as well as approval information. Mortgage blockchain is reducing loan processing time and operational costs. It is because of accessing the same data by an appraiser, underwriter, or any other third party. Adopting Mortgage blockchain is giving a competitive advantage to mortgage lenders. Blockchain technology is transforming the Mortgage Industry by providing the best customer satisfaction. Inflooens has the best Loan Origination System that incorporates all the benefits of blockchain technology.
Mortgage blockchain technology is enhancing customer experience and reducing operational costs, and encouraging regulatory compliance. Every innovative technology has some pain points. One of them is, Mortgage blockchain needs the participation of all parties involved in the mortgage process for its implementation. Inflooens has adopted blockchain technology in its Mortgage LOS and is providing seamless operations to its customers.