BLOG VIEW: Technology shifts during this lingering pandemic include remote online notary, system-to-system communication, digital signing and the like. This has shown the industry what can be done if everyone works together toward a common goal, which in this example is touch-less processing.
That same approach is needed to usher the residential mortgage industry into a new age of technology that includes blockchain. People reference ‘blockchain,’ but let’s talk about what this means, by example.
With larger lenders doing more straight-through processing using automated underwriting systems, the leap to adding the benefits of technology, such as blockchain, could be more feasible. It would only make sense to further automate the origination process to have this come to pass. And that would translate into a different due diligence landscape as well.
These new-age blockchain-based origination systems will change the mortgage origination ecosystem and allow originators to “transform the entire mortgage value chain.” Using distributed ledger technology will increase financial inclusion in banking and lending, while lowering costs and reducing time taken to originate a mortgage, therefore, creating a more efficient loan servicing system.
The mortgage industry has a “data” problem. A variety of systems and data sources make it difficult to ascertain accuracy of information being reviewed at any point. One of the key features of blockchain-based technology is immutability coupled with transparency and traceability of data points. These features will help the secondary markets, like loan due diligence, significantly by building trust, while simultaneously reducing cost and time taken to securitize a batch of loans. Blockchain-based originations, like other new-age systems, introduce new technology that changes the standard of how loans can be originated.
Some people may ask if the old systems are working, what is the need for a new-age system? Today, a 30-day timeline is considered the standard to originate a loan. Even if the prospective borrower has a simple, straightforward W2 application, it can still take days when it could be done in a matter of minutes. If these simplistic loan applications were streamlined for those borrowers who meet all the requirements and have readily provided all information requested, consider the time savings and how those resources could be allocated to address more complex loan applications.
What if a loan application could be approached like credit card applications are today, with almost automatic approvals? The use of blockchain technology can not only fetch but also perform straight-through processes for property, borrower and third-party data, including employment, credit and information relevant to the loan application, in a secure automated manner. As an industry, we are not there yet, and it’s because of the limitation of mindsets not that of the technology.
Breaking Into a New Age Mindset
The shift away from traditional processes is not only reliant upon the adoption of technologies – it also requires a mindset shift from large players in the industry, and it only takes one domino to fall. If a bold player of significant size with confidence in the technology chose to implement blockchain for the mortgage industry, it would inspire others to do so as well. This is a win for consumers, realtors and lenders. Consider the savings if applied technology enabled closings within hours. The purchase market would now have a new issue, that being how long it would take for the seller to move out.
For these new-age systems to be implemented across the industry, it requires everyone in the industry to break out of their “old school” mindset and devote resources with priority toward advancing technologies.
Specifically for the due diligence industry, this transformation will look like receiving information that is electronically adjusted and already processed to a certain extent, before human interaction. Equipped with pre-adjusted information, underwriters or other mortgage professionals can then more quickly enter the decision-making process, since the upfront work, such as applying or not applying specific rules, has already been accomplished.
At that point, when built-in pre-processing and smart contracts are expected, that is when the industry will have the potential to flip the digital switch. More streamlined processes will result in time saved, which can be used to increase operational efficiency. It can also allow for investment in creating new financial products and services by leveraging the fourth industrial revolution with technologies, including artificial intelligence, robotics, the Internet of Things (IoT), 3D printing, quantum computing and many others.
Rather than be at the end of the curve, consider the positive attributes of being an early adopter to transform the origination process for both staff and customers. Once one prominent player starts the domino effect, these new-age systems have the potential to become the industry standard, and those that bravely adopt technologies will reap the benefits.
Kunjar Bhaduri is the chief technology officer of Wipro Opus Risk Solutions, a wholly-owned subsidiary of Wipro Ltd. and risk management and QC service provider.