I get that most servicers see this story’s headline and think: is blockchain even a thing in mortgage? Short answer: not yet, but it will be. It’s not enough just to modernize servicing SaaS technology—we must also lay new infrastructure to stay ahead of where consumer finance and capital markets are headed. With that, here’s what servicers should know about mortgage blockchain disruption right now.
When Will Mortgage Blockchain Go Mainstream?
Sagent recently joined forces with digital payments/lending disruptor Figure in a deal that adds Figure as a Sagent customer and allows us to bring scale mortgage assets onto the public Provenance Blockchain (developed by the Figure team) to reduce mortgage costs by up to 100bps from origination through securitization.
Blockchain for mortgage isn’t mainstream yet, but it will be soon. Instead of constant QA/QC and re-underwriting/revalidating loans across the loan lifecycle, blockchain can streamline the process, bringing transparency, speed, cost-savings, and increased portability of MSRs.
How Mortgage Blockchain Works
In simplest terms, blockchain is a secure, decentralized database whose history can never be changed. Crypto pros call this never-changing feature “immutability,” which makes a mortgage blockchain like Provenance the ultimate source of truth for all parties across the origination-servicing-securitization lifecycle.
Here’s How It Works
For borrowers, the loan application experience feels just like the phone-based process they’re used to. However, because the loan originated on blockchain (via infrastructure invisible to the borrower), the originator doesn’t need to verify/reverify the borrower’s data/documentation with their warehouse lenders and investors. This drives massive origination cost-reductions.
Fast-forward a few years, and a mature mortgage blockchain will replace our industry’s “trust, but verify” approach to mortgages with truth—the immutable blockchain becomes the single source of true source data on borrowers, loans, and loan pools.
In servicing, blockchain will eventually power real-time data-sharing between servicers, investors/GSEs, regulators, and borrowers. Mortgage servicers can track borrowers’ payments, perform required monthly reporting to GSEs and other stakeholders, manage non-performing loans through loan mods, and manage potential foreclosure, REO, and property preservation efforts on-chain with immutable recordkeeping to reduce risk and cost throughout the process.
On the securitization side, a smart contract can be created for each deal and hosted on-chain to test loans against preferred underwriting standards and flag any loans in a pool that don’t meet the criteria.
As Figure founder Mike Cagney explained, “The blockchain can reduce audit quality control expenses [and provide] a medium of certainty. In the over-the-counter market, it can take 100 days for a loan pool to settle. [On blockchain], you can do it in real-time.”
Blockchain Disruption for Skeptics
To the skeptics, I urge you to take a long, hard look at the benefits before writing mortgage blockchain off.
Figure has already proven the cost-saving potential, demonstrating 117bps of savings for HELOCs from origination through to deal execution. With their Homebridge acquisition, they will continue with blockchain proof cases using billions in first-lien mortgage originations in 2022. If the end result is anything like Figure’s HELOC cases, we may see real momentum building for mortgage blockchain.
It’s also worth noting that much of the cost reductions would come from title transactions, thanks to reductions in personnel costs and commission spend. One report by Moody’s estimates blockchain title transactions could reduce these expenses by 10-20%, for an annual savings between $840M and $1.7B.
Deliver Today While Building for Tomorrow
The pandemic forced a quick shift towards digital that we can’t—and shouldn’t—go back from. As more banks/lenders embrace tech to prioritize the consumer experience, the next logical step is to streamline the process itself, and mortgage blockchain is the most impactful way to do so.
Structural disruption is like the proverbial frog in boiling water—it happens slowly, and then all at once. Put more plainly, only the unprepared get disrupted. At Sagent, we’re laser-focused on our consumer-first servicing modernization vision from a SaaS software perspective—but we’re also building new blockchain plumbing to prepare for the next two decades.
We’re delivering today for our servicers while building for tomorrow—and that’s what servicers should expect from all their partners.