A New Blockchain Platform Is Launching to Decrease Mortgage Fraud
Mortgage fraud is a phrase that brokers and lenders hear far too often. Its prevalence in the lending process is due in large part to inefficient, paper-based processes that are currently required to screen and approve loan applicants. Consortiums of major players in lending have been formed around the sole mission of rooting out mortgage fraud, yet the problem persists on a wide scale.
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Mortgage fraud has been widely pointed to as one of the primary causes of the 2008 financial crisis, which is also referred to tellingly as the “subprime mortgage crisis.” The crisis illustrated one of the more extreme confluences of negative outcomes that can arise from large-scale fraud and opacity in the mortgage lending industry. When mortgage fraud occurs, lenders are often in the dark about the risks they are incurring, brokers drowning in paperwork can be easily duped, and borrowers enamored with the idea of owning a home underestimate the stress and financial ruin that is likely to befall them. The collective result, as the world witnessed circa 2008 and beyond, is unmitigated misery.
A solution to mortgage fraud: the blockchain
The persistence of mortgage fraud has led to an obvious conclusion for those seeking answers to this massive problem: the mortgage lending process needs an overhaul from the bottom up. Block66 is a company that is turning to technology—specifically, the blockchain—to foster unprecedented transparency, simplicity, and cooperation as a means to transform the lending process and root out mortgage fraud.
The blockchain serves as an immutable source where vital lending-related information can be stored, safe from unauthorized tampering and illegal alteration. This means that verified financials, personal identification documents, pay stubs, and the many other documents required to apply for a mortgage can be derived from their original sources and stored on a blockchain-secured database. This database would allow the parties overseeing loan origination processes to draw from the same source of verified information without having to transmit trainloads of paperwork via outdated physical methods. This ease of access to a single, decentralized hub represents a significant increase in transparency and universality of standards and practices, which can only reduce instances of fraud.
“We created Block66 to offer new opportunities for borrowers and end the time-consuming and paper-driven processes in the mortgage industry,” said Joe Markham, founder and Chief Executive Officer of Block66. “Our platform will make it easier for everyone to find what they need, so mortgages can be approved and funded faster. By storing the history of each transaction on the blockchain, we will provide a valuable audit trail for lenders, which will help mitigate mortgage fraud.”
The demand for this blockchain-based mortgage lending solution could not be greater, considering that by certain academic measures, as many as 25% of U.S. residential mortgage loans originated between 2003 and 2005 contained one or more indications of mortgage fraud. Far lesser amounts of illegitimate mortgages circulating in the financial marketplace as mortgage-backed securities could spell a major problem; nearly a quarter of all mortgages proved a recipe for disaster.
A problem that’s still on the rise
CoreLogic’s 2017 Mortgage Fraud Report indicates that, even in the wake of a fairly recent mortgage-related financial crisis, the problem appears to still be on the rise. Their Mortgage Application Fraud Risk Index shows a 16.9% increase between Q2 of 2016 and Q2 of 2017. CoreLogic’s highest ranking principals agree with Block66’s assessment that secure digitization of the lending process holds promise for mitigating the risks associated with mortgage fraud.
“The move to digital mortgage processes may limit opportunities for alteration or interception of critical underwriting information, as data will be directed straight from reliable sources directly to the lender,” said Bridget Berg, Principal of Fraud Solutions Strategy at CoreLogic.
Block66 is embracing all that the digitization of the mortgage lending processes on the blockchain offers the industry. Security and fraud reduction is foremost, but they also want to reduce the time it takes to complete the loan origination process—from a current duration of 30-45 days to as little as 24 hours. Additionally, they seek to create tokenized securities based on smart contracts that lenders can use to build mortgage-backed lending instruments. This would reduce the amount of capital that any one lender must tether to a single mortgage.
“The idea behind mortgage tokenization is to bring in smaller lenders,” said Markham. “They are often reluctant to tie themselves to longer repayment plans but are more willing to lend capital to customers who aren’t always favored by traditional banking institutions, even though they are credit-worthy.”
In the eyes of those who believe in the blockchain as a viable solution for greater transparency in the mortgage lending process, the more lenders are willing to buy into the system, the more stable the industry will be. The larger the pool of lenders and brokers using the blockchain platform as a reference for oversight and as a means to maintain liquidity through tokenization, the fewer cracks there will be for fraudulent applications to fall through.
Block66 announced in a recent press release that their Token Generation Event (TGE) will occur on Thursday, September 6th. They are aiming to raise $20 million.
Image via Pixabay
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