Outside the Box: Crypto’s latest promise: Lowering home mortgage costs
Cryptocurrencies are here to stay. What began in the aftermath of the great financial crisis of 2008 among a coterie of technologists has swelled into a vibrant and innovative ecosystem. Not a day goes by without news of seminal developments in the cryptocurrency community: from retailers accepting bitcoin, to financial institutions developing smart contracts based on blockchain technology.
The most exciting possibilities are the ways in which cryptocurrencies can help make the mortgage process more efficient and ultimately more cost-effective. With mortgages becoming more expensive, lenders would be wise to adopt blockchain based solutions to keep a lid on costs, which they can pass onto consumers.
Here is how this technology may transform the industry to help borrowers attain their dreams of homeownership.
1. Increase efficiencies in the mortgage application process: Moody’s estimates that blockchain technology may reduce mortgage costs to the amount of $1.7 billion in annual savings. The authors of this report contend that this technology could “streamline mortgage processes, eliminate redundancies and reduce costs.” Using this technology would introduce more transparency, as borrowers would know where their loan applications were in the process. The numerous parties involved in an origination could leverage smart contracts. That is, loan consultants, processors and closing agents would be linked with the same distributed ledger involved in the overall transaction. All the parties involved in the transaction would have more situational awareness regarding the loan.
2. Streamline mortgage servicing: Getting a mortgage is one thing. But then you have to pay your servicer for the next 30 years. Many of these servicers have antiquated systems to track and manage payments. By leveraging blockchain, consumers could pay their mortgages via digital payments which could be synchronized and reconciled immediately. Instead of paying via a check or ACH, homeowners could use a servicer’s payment platform that leverages blockchain. Of course, the servicer would have to update its own technology but this would be worth the investment to make payments more efficient. Such streamlined payments may make it easier to trade Mortgage Servicing Rights (MSR), which would create more liquidity in this market.
3. Create a nationwide title registry: There may be an opportunity to create a nationwide title registry that is maintained and distributed via blockchain technology. This would have the effect of quickening the mortgage-origination process, as updates to the national registry could happen more seamlessly. For example, there was a trial of an Ethereum-based
blockchain title registry in South Burlington, Vt. While the prospect of such a national registry is still years in the making, blockchain technology represents a promising avenue of innovation for this part of the mortgage origination process.
The price of bitcoin
and other cryptocurrency may continue to generate headlines. But let’s not overlook incredible ways in which the underlying blockchain technology could help transform the mortgage origination process to better serve homeowners.
Sanjiv Das was the CEO of CitiMortgage and Caliber Home Loans.