What Impact Will Blockchain Have on Mortgage Lending in 2020?


In the future, blockchain mortgages may become more common. While this is still early technology, we’ve seen enough to know its potential.

We aren’t talking about buying and selling homes with Bitcoin, although this has surely been done. Instead, blockchain is a distributed ledger technology that brings integrity, security, and speed to financial transactions and other contracts.

Blockchain technology has already disrupted the financial industry, but it will continue to bring changes to the mortgage space in 2020 with more widespread adoption.

Blockchain Technology and the Mortgage Process

Traditional mortgage applications are filled with bottlenecks that make them notoriously inefficient. They are paper-intensive processes that can take between 45 and 60 days to complete. According to one report by PWC, the average mortgage application is 500 pages, and the length continues to go up instead of down. The current process also involves many intermediaries (agents, appraisers, brokers, attorneys, underwriters), each of which adds to the cost of the transaction.

What distributed ledger technology (DLT), or blockchain, brings to the table is a smart contract process that is more secure, faster, and makes data simpler to access for all involved.

Benefits of Blockchain for Lenders

If blockchain mortgages become more widespread in 2020, some of the ways that these will benefit lenders include:

  • Quicker Verifications - All parties will be accessing the same smart contract, so each step in the process is streamlined. This can help lenders fund more mortgages in a shorter period.
  • Lower Access Costs - No single service provider will have proprietary access to information in the blockchain. So, there will no longer be fees and roadblocks to access information.
  • Transparent Audit Trail - By its nature, DLT creates a transparent audit trail, which lowers the risk of fraud. Any mistakes can be remedied with subsequent blocks, but every block in the chain is permanent.
  • Elimination of Accumulated Documents - Fewer requirements for paper storage of records and document accumulation will reduce errors and costs.

Blockchain Advantages for Borrowers

A more streamlined digital mortgage process benefits borrowers as well. First, buyers could see lower closing costs thanks to the reduction or elimination of many of those third-party intermediaries. The better recordkeeping can also lower the instances of fraud, which can be costly.

Another benefit of blockchain is that it could make mortgages accessible to the 45 million Americans without a credit score. A Digital Credit Score could be established and maintained through blockchain, allowing these consumers to apply for mortgage loans.

What’s Missing for Blockchain for Mortgage Lending in 2020 and Beyond?

Before blockchain mortgages can go mainstream, several things need to happen. First, any data security issues must be addressed. Even though blockchain offers robust security, there may be weak points due to third-party agents accessing a network.

Also, issues related to legal frameworks and blockchain must be clarified by regulators. For example, is a digitally-signed contract legally binding? Regulators will also need oversight into real estate transaction details.

The mortgage industry is just starting to catch the blockchain bug. These new decentralized platforms are making it simpler for people to access loans for real estate. Likewise, the time and cost savings realized by lenders will be significant.