Speed Up The Transaction Time By Implementing Blockchain in Mortgage Industry

By Suffescom Solutions

September 19, 2022

In recent years, it has become quite apparent that the utilization of the blockchain has tremendously increased. People have now developed a trust in this significant technology. This is due to the higher level of transparency it supports across every platform. This is a decentralized network, so everything is handled with utmost precision. It has become the favorite of every section of people. As the transactions are fully secure, large organizations are taking a step forward and implementing it in their domain.

More than anything else, banks and insurance companies are fully satisfied with its capabilities. There is massive processing of payments right from taking to lending money. If we estimate the figures, nearly 4k financial assets are entirely functional on this technology. Blockchain technology in mortgage is a perfect example that can be seen in the virtual lending market.

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But let’s just peek into the traditional mortgage process;

Conventional Blockchain Mortgage Process

As per the credit score, the lender quotes a price. The application is then submitted to various government agencies with information about the lender's income, assets, and history that needs approval or rejection of the application. The proper verification of the information encompasses the proper review of any property to validate its worth. Then comes the underwriting part, where the underwriter reviews every piece of information for the amount of risk involved.

This is basically to check the risk potential involved in person. After the approval of the mortgage, the next thing in line is the settlement, and the buyer moves into their property.

Blockchain Utilization In Today's Era

Blockchain has created a serious transformation in the working procedure of many industries. The same goes for the mortgage sector, and due to its extensivity, There are various participants who are likely to adopt this technology for the present and the upcoming times.

The rapid adoption of blockchain mortgage  can be clearly understood as under;

Blockchain in the lending industry has a great role to play. Big lending organizations are working on trials to upgrade their working efficiency. This is done by keeping all the details about the exchanged data, records, and shares about the loan. 

Blockchain technology in the mortgage has initiated a lot of characteristics like verification of the loan files, ensuring transparency and storing the output, and adding higher security to the entire loan file. The main purpose of offering security is not to alter the loan details.

The blockchain acts as the custodian that allows the lenders to eliminate all the manual operations like document checks, details about the cost, money settlement, and much more. The implementation of this technology helps in time-saving, speeding up transactional settlements, and creating precise records, thereby making the entire process much simpler and budget-friendly. All the above-mentioned things are responsible for allowing lenders to respond and solve every inquiry very effectively.

Need For Blockchain In Mortgage

Open-access blockchains have always acted as a boon for lenders. If there are any modifications in public property, then the information is accessed very conveniently via the blockchain process. 

The decentralization of the network nodes has successfully replaced the costlier banks and reduced the time taken in loan processing. As we know, nearly about 2 months time is required to approve a loan, and a heavy fee needs to be paid. But with blockchain mortgage, the approval for the mortgage application gets passed in a few minutes. It has resulted in a perk for small-scale businesses.

How can Blockchain Change the mortgage ecosystem?

There are majorly two ways in which the mortgage ecosystem can be altered.

Monitoring the MI certificate 

When the loan is insured, the MI certificate is allocated by an associate MI merchant. The transparency is extended by hashing the certificate inside the blockchain. It helps track the efficiency of the latest written insurance. If the person fails to pay back the mortgage, this technology will track down every detail of the loan defaulter.

MI certification automation through smart contracts

The smart contracts allow every party to be in accordance with the loan particulars such as premium rating, type of insurance, etc. When several parties are involved, then each one of them obeys the loan's FICO score, loan type, quantity, etc. This eventually operates the MI rating by having an agreement with each party. 

Key Areas That Are Targeted With Blockchain In Mortgage

If we take a look at the traditional mortgage system, then one can clearly see that a lot of time is invested in going through a lot of phases. Numerous verification steps are responsible for including the additional price and time. This is broadly explained as under;

Document Verification

Verifying the valuable information in the document verification is to conduct several lenders utilize blockchain for various verification checks and information validation. This is done to verify the information to maintain its reliability, security, and transparency.

Notarization

There is a wider scope for e-notarization implemented through blockchain technology. This is done to check the data's potency, performance, and credibility without fraud and deceit.

Title Transfer

Various title companies can identify and authenticate the information with utmost precision. This also helps eliminate the requirement for title insurance.

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Perks Involved With The Blockchain Mortgages

Lower Cost

There are a lot of procedures that need to be followed in the conventional mortgage process. But the blockchain is an advanced technology that removes third parties, thereby reducing costs.

Smooth Verification 

There are a lot of steps involved in making claims on the property, buying title insurance, and much more. The verification of the title insurance is essential. This is outrightly eliminated because of blockchain technology.

Accurate Database Management

In the conventional method of blockchain, a lot of paperwork is involved. There is a need for title insurance, but blockchain has put an end to title insurance. This is stamped out as the blockchain eases the process of verifying the chain of title.

Database management is a key factor for data security. Apart from implementing blockchain technology in the mortgage, its requirement in the insurance industry is well understood. It can also be said that the metaverse in insurance could lead to tremendous financial outcomes.

Smart Contracts

These are a set of rules that are in the coded format.  These rules are triggered every time a  specific event takes place. It can be well understood that if a buyer purchases a property along with the homeowner's insurance, the mortgage gets shifted to the next step.

The inclusion of various parties results in higher costing. Every party has a seperate cut that needs to be paid. But with blockchain technology, the intermediaries are removed as they are not required.

Smart contracts are self-executing that help in the transparent exchange of data. In the mortgage realm, digitized documents are offered based on predefined terms. The documents are digitized for tracking and monitoring the payments associated with the automated mortgage.

Another way of cost reduction is by cutting out the money spent on the threat. Generally, it is known as the double spending problem, where the money is spent twice. It is fully resolved by blockchain technology, where a considerable amount of computing power is required for changing the block. Therefore, it's time-consuming work that is usually eliminated by blockchain.

Read More: End-to-End DeFi/Smart Contract Development Services

Transparency

The biggest advantage is that the blockchain offers transparency at all levels. Whatever transaction takes place, it is visible to every person. All the transaction-related records and sales history are available publically. 

The accessibility of the ledger is with everyone, and for any changes, there needs to be approval from all parties involved. Blockchain Mortgage is responsible for not allowing any dishonest person to change the clauses present on the document. There is no chance of any valuable information getting lost during the entire process. 

Amplified Speed

As we know, traditional methods are more about the paperwork that needs to be analyzed at every step. There is even a possibility of error occurrence. So, much precision is required while framing any document related to the mortgage. 

Whereas due to blockchain, the ledger needs to be modified every time. This hassle-free and extremely quick method perform the procedure in a fraction of a second.

Advanced Security

Data storage and record keeping are the essentials of blockchain technology. For any approval and validation, there needs to be an agreement between all the parties. So, when the record ultimately submits in the form of the block, it needs approval, which connects with the previous one. The blocks include all the records in the encrypted format.

If someone tries to manipulate the records in the block, they have to change the hash functions completely. Thus, much time is invested, making it virtually impossible for hackers to go ahead with their ploy.

Seamless supply chain

The mortgage industry forms a major part of the financial sector. So all the phases involved in this sector need to be synchronized. In case of delay, any part of the phase results in interruption and delay. Often, when any issue is faced in any part, it becomes difficult to find where the problem lies.

Blockchain technology in mortgage streamlines everything in the best possible way. There is end-to-end tracking involved in the assortment of immutable transactional records. The information is kept updated, so there is no lagging involved in any phase. There is end-to-end tracking involved in the assortment of immutable transactional records. The information is kept intact with proper verification and no alteration in the financial ledger.

The mortgage industry is quite reluctant to adopt any new technology, or there is a hindrance towards the complete shift of data software on the blockchain platform. There are more perks related to this technology, but some obstacles must be addressed.

There are chances for data privacy risks which is obvious for an open distributed ledger. Some integration should be required to lower the trade-off between efficiency and privacy.

In the case of private blockchain networks, security remains a major concern. The users automatically receive the changes made in the database. This means that the user gets a copy of every data, due to which the uprightness of the platform gets compromised. This also gives a chance to the hackers to harm the database.

Lastly:

Digitization has revolutionized the way how the mortgage industry works. Primarily, it has drastically shifted the paper-based domain into an error-free realm. There has been a drastic limitation in the costing, manual documentation, and the third parties involved. It has also resulted in seamless customer retention by satisfying their needs. Overall, blockchain technology in the mortgage has proved to be a wonderful method of enhancing the mortgage system's reliability, scalibility, and transparency.

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