Solving Age-Old Pain Points in the Mortgage Industry with Distributed Ledger Technology (DLT)

It seems like no matter where we turn, “blockchain technology” is all over the news today. The new and decentralized technology is making its way into every facet of industry in the global markets, but what does that mean for the consumer? One of the industries ripe for an upheaval and disruption is the traditional mortgage industry. Traditional gatekeepers in the financial industry for real estate have been keeping a clamp on new ways of financing homes, but that may soon be coming to a close. Let’s take a look at some of the pain points in the industry now and an example of a company seeking to fix them.

Image source: MortgageOrb

The Problem

Being able to purchase your first home, whether as an individual, partners, or a family should be simple enough. You save enough for a large down payment, have a good track record of paying what you’ve borrowed in the past (read: a good credit score) and then you finance a home. Homes are one of the single largest purchases most consumers will ever make, so it makes sense for most consumers to not be able to afford to purchase one outright, so we finance them. Simple enough, right? Wrong.

The current mortgage industry is convoluted and complex, even though it’s focused on one of the most quintessential high-value purchases consumers will ever make. While it should be simple, straightforward, and involve the minimal amount of parties required (borrower, lender, and a third party to facilitate the transaction), that’s rarely the case. Getting a mortgage and financing a home nowadays involves all kinds of unnecessary noise in the industry. Not only are we dealing with the borrower, lender, and third party for the transaction, but deals often include another financial institution, rating agency, appraiser, broker, and many other add-ons.

The mortgage process is so much of a pain that the popular personal finance website Nerdwalletwanted to hear what consumers had to say. After running a poll over over 2,000 people, they found that:

  • 42% of people found the mortgage experience “stressful”
  • 32% of people polled found the process “complicated”
  • 49% said they had regrets about how they handled the process

That doesn’t sound so simple and straightforward, now does it? So what can we do to improve this process?

Blockchain as a Part of the Solution

Like many other industries, blockchain technology offers a unique way to tackle some of the oldest problems in the industry. By decentralizing the storage and handling of information, those involved in the mortgage industry aren’t reliant on single companies, and their reputation, to accurately and securely store industry data. By getting rid of many of the information “middlemen” with Mutual Decentralized Ledgers (MDL), the process can be trimmed down to just the necessities and make the entire transaction painless and straightforward.

On top of the information side of things, there’s a unique opportunity to integrate crowdfunding for traditional mortgages. Instead of going to a mortgage broker at a traditional financial institution, future homeowners seeking funding can pursue peer-to-peer (p2p) lending for financing their first home. This roadblock is particularly burdensome on the current generation just starting in the housing market: millennials.

Many of the newest customers coming to the markets find it difficult to get access to financing because of student loan burdens and an inaccurate reflection of their creditworthiness simply because of a narrow metric like a traditional credit score.

One of the primary companies in the industry working to solve this problem is Homelend. Homelend is an up-and-coming company focusing on the problems of the mortgage industry and is seeking to remedy those by integrating blockchain technology via P2P lending. Unlike the traditional mortgage industry that often raises more questions than answers, Homelend is looking to utilize sophisticated technology to disrupt a dinosaur market.

According to the CEO of Homelend, Itai Cohen, he and the team behind the company are focused on solving problems that are especially relevant to their generation. The two primary objectives of the business are to

  1. Modernize the mortgage lending system that’s definitely in need of an update
  2. Expand opportunities for a new generation of borrowers that have either been denied access to financing or find the entire system too complicated

By solving the unique, yet all too common, problems in the marketplace with DLT and p2p lending, Homelend is striving to be one of the most disruptive actors in the mortgage industry to date.