The Next Frontier – Digital Assets Mortgage Processing

The Faster Payments Council member, Barry Tooker wrote a piece posted on LinkedIn titled “Real-time Payments – Hang on, Not So Fast”[1] - about his personal experiences with the sale of his house and the access to and availability of funds from that sale. He bemoaned that real-time payments promise swift and efficient transactions, but widespread implementation is clearly lagging. Barry’s experiences provide a perfect backdrop for the ensuing discussion on the role that distributed ledger technology (DLT) can play as a change agent.

In the first blog[2] the FPC Digital Assets Work Group (DAWG) discussed the benefits of using DLT to help support these manual processes, and specifically used the Workflow Template as a tool to help understand the intersections where payments are made and where DLT could be used to accelerate and/or improve efficiencies in the process.

The mapping results for the mortgage loan process are displayed in the diagram below. The swim lanes provide details on the process steps for securing a mortgage, the steps in which payments are required, and the opportunities where digitization and use of DLT can be deployed.

There are several use cases where instant payments can improve the mortgage lending processes that are being solved by varying FinTechs, including several blockchain startups. However, the DAWG believes the most impactful and practical near-term opportunities for DLT exist in removing the redundancy and latency in data gathering, especially borrower and asset information collection in the underwriting process.    

Where can mortgage lenders best leverage this technology? The DAWG already determined that for Digital Asset Mortgages, the digital ledger opportunity lies in digitizing the onboarding and registration process to simplify the complexity of know your customer (KYC). Identity and access management facilitates a streamlined customer experience, providing the buyer with more instantaneous access to documentation and funding. Tokenization of the digital asset ownership of the property can also streamline title searches as well as the transfer of ownership of the digital asset at time of closing. The digital asset can also record the mortgage lienholder linked to the smart contract representing the mortgage contract repayment and eventually lien release against the property.

Here are four important areas where organizations can start to incorporate DLT into their mortgage processing: 

The industry’s interest in supporting on-chain digital ledger is still dubious, at best. Financial instruments are very complex. There are significant opportunities to create a better customer experience and to make more funding available based on the richness of the data available. There will be a transition period to get the financial service industry to move toward an on-chain digital ledger that stores information on the property digital asset, closing documents, and KYC pertaining to the smart contract.

Warning! Competition for ownership of this space is imminent. FinTechs are emerging as new contenders in the information sector, poised to compete aggressively with financial institutions for this business. These institutions must now decide whether they can afford to forgo early adoption and still remain relevant.

Digital Assets in the Financial Industry Work Group
Thank you to the members of the FPC Digital Assets Work Group who contributed to this blog.

Digital Assets Work Group Leadership
Bo Berg (Work Group Chair), Avenue B Consulting
Maria Arminio (Work Group Facilitator), Avenue B Consulting, Inc.

Digital Assets Work Group Contributors
Keith Vander Leest, Cross River Bank
Jonathan Shiery, Guidehouse 
Kirsten Trusko, Payments as a Lifeline
Steve Wasserman, Photon Commerce
Lou Grilli, PSCU
Peter Tapling, PTap Advisory, LLC 
Larry Pruss, Strategic Resource Management Inc. (SRM)
Robert Gallic, The MITRE Corporation
Michael Knorr, Wells Fargo & Company