Simplifying home loans with STRATO Mercata.
Context & Challenges
Home loans and mortgages are based on a complicated value chain, with a growing number of parties and an increasing wait time between submitting an application and reaching settlement.
Estimates place the global residential mortgage market at $31 trillion. With 66 percent of America having a mortgage on their house, and as much as 70% of the populations in the UK and China, mortgages are perhaps the area in which financial institutions most closely interact with the average consumer. This means that they are a particularly sensitive pain point, and more exposed than others to the public.
The average time between submitting a home loan application and reaching settlement is 30-60 days. This period involves a complicated chain including customers, mortgage brokers, compliance officers, originators, warehouse lenders, underwriters, solicitors, real estate agents, and more. Moreover, the average mortgage closing costs sit at around 2 to 5 percent of a property’s value, meaning on a $250,000 home, a buyer could pay anything from $5,000 to $12,500 just to obtain the mortgage. In 2015, PWC reported the average mortgage application to be over 500 pages. They estimate each intermediary adds 1-2% of the property’s value in their own fees as well as days of processing time.
The current mortgage process is lengthy and cumbersome, following the below steps:
1. Buyer applies for mortgage from a bank
Buyer provides multiple items of documentation such as bank statements, proof of income, existing loan information, and consent for a credit report to be compiled by an external credit reporting company
2. Bank employs a surveyor to conduct a preliminary property evaluation
Bank decides on an estimate loan number.
3. Bank begins the credit approval process based on the information provided from buyer and 3rd parties.
4. Bank confirms property ownership with land registry offices, based on the information of the seller
5. Bank request a final property valuation from the surveyor
Bank cross-checks final valuation with approved amount of credit
6. Bank notifies buyer and solicitor of decision
Arrangements are made to sign the necessary documents (loan agreement and deed)
After documents are signed, bank initiates the drawdown of funds and land registry offices can be informed to update title deed.
There are three key challenges inherent to this process, creating bottlenecks and inefficiencies.
1. Increased Timeframes — Each intermediary adds delays and lags of their own, in addition to an already lengthy process.
2. Lack of Transparency — each 3rd-party holds their own documents, and requesting access is a manual process that can take a few days.
3. Lack of Coordination — information must be updated separately on each party’s ledger and verified by a 3rd-Party.
Parties involved:
— Financial Institutions (FIs)
Financial Institutions invest huge amounts of money and labor into mortgage processes, much of which could be avoided if the mortgage cycle was more efficient and less dependent on 3rd-Party intermediaries.
— Sellers
Sellers often wait to close a sale for mortgage processes, which can delay their commission and place financial strain on them, as well as lead to wasted time if a mortgage is not approved.
— Buyers
Buyers are often caused distress and anxiety by lengthy and costly mortgage processes, with delays in mortgage approval leading to delays on them finding and settling into their homes.
— Society
If mortgage processes were more transparent, society would have more pleasant and efficient interactions with banks, and be more aware of the processes at hand, which could drive more intelligent decision-making for all and boost FI’s reputations.
Connecting the mortgage process on a distributed ledger, introducing transparency and efficiencies.
Solution Benefits
STRATO Mercata resolves several of the delays and challenges inherent to the $3 trillion loans and mortgages market. These solutions drive a number of tangible benefits:
— By creating a single, distributed ledger drive industry standardization and allow for seamless communication between parties along the mortgage value chain.
— Traceability creates infallible and incorruptible records to evidence and confirm ownership of assets and track payments.
— Reduce the potential of error through automation — immediately uploading updates to the system and eliminating bulky paperwork, and ensure all data is updated in real-time across systems.
— Accelerate settlement flows though automation of certain actions via smart contract logic — introducing rules, models, data, and transactions to be automatically enforced or updated.
— Prevent and seamlessly identify payments fraud by inherently verifying all data and tracking all involved parties.
Additional features include:
— RESTful APIs for direct connection of IoT devices such as bankers’ devices to the blockchain network
— Identity Management, OAuth, and SSO capabilities for simplified IoT authorization and user login
— Privacy via private shards to keep sensitive data private and control who sees what data
— Scalability to include infinite groups and institutions on shared private chains, creating standardization.
— Enterprise data modeling for integration into existing data systems and to ensure interoperability
