Blockchain is a form of distributed ledger technology (“DLT”). Put simply, it is a distributed database that allows for secure, transparent, and tamper-proof record-keeping – essentially, an immutable transaction ledger. It is the underlying technology behind Bitcoin and other cryptocurrencies, with the potential to revolutionize a wide variety of other industries.
A blockchain is basically a digital ledger of transactions that are continually tracked and recorded, where each transaction is verified and secured by cryptography. Each transaction is recorded as a “block” of data, which is connected sequentially with other related data blocks, forming a “blockchain.” The manner in which the data chain is securely connected – in blocks marking exact time and sequence, makes it essentially impossible for anyone to falsify or otherwise tamper with the data, as any changes would be recorded as separate transaction “blocks” added to the chain. No individual transaction recorded to the blockchain ledger can be altered or removed, so any changes added as additional blocks will be immediately apparent.
A private blockchain network may only be accessed by members specifically granted access, and all transactions are visible to anyone on the network. Further, no member of the network, including administrators, has the ability to delete or alter a transaction. The security and transparency created by blockchain technology may therefore be used to increase efficiency, trust, and confidence in a wide range of industries.
Indeed, any industry that relies on secure and reliable record-keeping could benefit from the use of blockchain. This includes everything from finance and banking to healthcare and real estate, and beyond.
1. Property Ownership and Sale.
The use of blockchain in real estate and lending is still in the early stages, but there are already a number of ways in which the technology is being used or trialed to increase efficiency and accuracy. These include using blockchain to record and track property ownership, and integrating blockchain-based “smart contracts” to automate the purchase and sale of property.
2. Lending Operations.
The potential benefits of using blockchain to streamline the entire lending process are limitless. For example,
blockchain technology can improve operations by making it easier to notate, distribute, and share loan data; perfect for the high-volume business of many commercial and residential lenders.
Loan files can be housed on a blockchain, allowing lenders to use blockchain as a data custodian. This increases accuracy in the loan underwriting and origination process, and facilitates lenders’ ability to transfer or enforce loans post-origination, by verifying information contained in the loan file and recording the results of that verification in a permanent, inalterable ledger. Imagine the security and transparency of a loan file that cannot be lost or tampered with, accessible to anyone in the world.
With the blockchain automatically tracking and recording all information and transactions related to each loan, lenders can eliminate many costly and time-consuming manual processes, many of which revolve around document verification. This saves time and money by speeding up settlements, improving record-keeping, and reducing ongoing expenses, thereby making the entire process more affordable.
Increasing efficiency, accuracy, and cost-effectiveness in the lending process helps to put mortgages within reach for many more prospective clients; something that’s particularly valuable when the overall housing market isn’t in great shape. As an added bonus, accuracy gains from distributed ledger technology give servicers and lenders the ability to more effectively manage and respond to regulatory inquiries.
3. Title Insurance.
Another real estate sector that’s ripe for blockchain adoption is title and closing, with a number of title insurance companies already utilizing blockchain technology to help manage insurance policies and create secure methods of remote online notarization.
This implementation of blockchain reduces risk and expense for the title company and the insured by streamlining the data search process, increasing accuracy, and reducing timelines as they relate to securing title at closing.
4. Mortgage-Backed Securities.
Capital markets are often early adopters of new technologies, progressing from the telegraph to stock tickers, telephones to the internet, and now DLT (including blockchain integration). Business leaders, investors, and other stakeholders are now leveraging the technology for trading and transparency. The fixed-income market will likely follow in the path of early adopters, and drastically improve their operations with DLT.
Blockchain can be used to trade traditional equities, cryptocurrencies, and other securities. In securities trading, it’s used to record trades and to verify collateral by using a shared digital ledger. Many firms choose to use DLT because it lets them reduce settlement times and duplicate reconciliation, allowing all stakeholders and applicable regulatory and ratings agencies to simultaneously access a central database of information. Applying DLT to mortgage-backed securities could be a game-changer for investors and aggregators alike, by increasing data and reporting accuracy, security, and overall transparency.
Interested in learning more about innovative solutions in the mortgage and lending industries?
This article does not constitute an offer to sell, or the solicitation of an offer to buy, any security interest in any jurisdiction. This material is distributed for informational purposes only and should not be construed as investment, legal, tax, regulatory, financial, or other advice. No assurance can be given that any investment objective will be achieved, or that an investor will avoid losses or obtain a return on an investment. While the information contained in this article is believed to be reliable, its accuracy is not guaranteed. Individuals should consult with their own professional advisors with respect to the legal, tax, regulatory, financial, and accounting consequences of any potential investment.