Owning a home is a dream for many people. It is also one of the most expensive purchases in life. To help with the cost, homebuyers apply for loans from banks and financial institutions, but the mortgage origination value chain is a complex process. Gathering data to determine whether to originate a loan is a multi-party engagement, and implementing changes to an application and its operating procedures can be complicated.
Key industry issues for mortgage loan origination include:
Multi-party coordination, multi-level executions, and complex reconciliation procedures result in huge time delays.
Whenever there is a change in ownership, searching, validating, and scanning land records from government databases becomes a tedious activity.
Any misrepresentation in the base documentation—especially income of the consumer, occupancy and property details, undisclosed debts and identity details—which form the key parameters, results in false loan approval and disbursement.
Duplicate copies for data and documents are maintained by various independent parties with different patterns and procedures.
Limited visibility of data management leads to poor user experiences and lowered customer satisfaction.
Now, blockchain technology is being recognized as a viable solution to these challenges.
Blockchain technology can help eradicate all the key issues in mortgage origination by means of distributed ledger framework, which provides a list of benefits and capabilities:
Mortgage Origination Ecosystem
Banks, brokers, credit unions, financial institutions, can take advantage of these capabilities by forming a lenders consortium and moving operations to a blockchain platform. Initially, lenders can focus on specific segments of the primary mortgage market to develop blockchain applications using enterprisepermissioned blockchains. By using smart contracts, APIs and microservices, lenders can integrate blockchain and enterprise applications, and link them to other service providers for better visibility. To see how this compares to existing models, refer to Figure 1, which visualizes a typical mortgage origination ecosystem on existing and blockchain models.
Industry trends: Blockchain in lending and real estate
The way forward for blockchain technology transformation
The mortgage industry is a major financial sector worldwide. Blockchain technology has enormous potential to transform the entire mortgage value chain, delivering unprecedented customer experience and empowerment, driving cost efficiencies, and achieving process excellence. This transformation is realistic, but it may take years to develop a mature model. Enterprises that adopt the blockchain platform as early as possible will reap economic advantages and can retain considerable market share. Blockchain technology is not meant to remove traditional lenders, but rather support the industry value chain by improving the experience for lenders and customers.
Managing Consultant, Product Banking Practice, Wipro Ltd.
Sridhar Sathyanarayan is a certified scrum product owner and certified data analyst with 13+ years of experience in financial services. Sridhar offers a broad expertise across capital markets and lending portfolios with a strong focus on wealth management and US residential mortgage domains. He is part of banking practice organization, presently associated with Wipro Gallagher Solutions, Wipro Ltd. He manages product development and engineering for a global U.S.- based bank, and is extremely involved in consulting and advisory, with a focus on NetOxygen product.
Sridhar can be reached at email@example.com