James V. Luisi is chief information and chief technology
officer for KeyStoneB2B. He has more than 30 years of experience in business and IT and has expertise in dealer banking,
brokerage, securities exchanges, commercial and retail
banking, life insurance, property and casualty, and portfolio
management. Luisi also has Series 7 and Series 24 licenses.
His deep roots in large information systems, database technologies, operational workflow, and enterprise and infrastructure architecture is driving KeyStoneB2B’s rapid technology
development. Reach Luisi at James.Luisi@keystoneb2b.us.
Blockchain Has Blockbuster Potential
This leading-edge technology can make mortgage
transactions faster, safer and paperless
By James Luisi
Blockchain, the technology behind online cryptocurrencies such as bitcoin, is attract- ing a lot of attention lately. Sierra Leone made history in March, for example, by
being the first country to use blockchain-verified election voting during its presidential election.
For many financial services professionals — especially
those who must maintain more conservative policies
and practices — blockchain is not fully understood.
Blockchain is a digital ledger in which transactions are
recorded chronologically and publicly. A simple metaphor proposed by author Bernard Marr in a Forbes
article is to think of blockchain as the “internet of value.”
Blockchain allows anyone to send value anywhere in
the world, Marr writes. A private, cryptographically
created key allows people to own blocks in the digital
chain. By giving the private key to someone else, the
value is transferred.
Because information is stored and exchanged by a
network of computers without any central authority,
blockchain establishes trust and identity by ensuring
that no one can edit a blockchain without the corresponding key. It’s important for mortgage professionals to understand this technology because blockchain
can be employed for major functions involving financial institutions — such as verifying identities and
preventing fraud, and recording the legitimate transactions faster and more accurately.
Another benefit is blockchain supports financial
transactions by recording authorized entries in several
locations that act as collaboration among sources to
verify the accuracy of the information. The effect is
similar to learning about a person by speaking with
many people who know the individual.
Everyone has heard of bitcoin, which is merely a ledger
of deposits and withdrawals of a digital currency
whose value is neither backed by assets nor promises
from any entity. There also are a growing number of
digital currencies created for investment purposes
where value is backed by assets, such as land, buildings and construction projects.
These digital currencies are largely being used as a
means to fund projects in a streamlined fashion that
do not require the expense of attorneys and investment
banks. Yet, blockchain can be a record for any type
of information that far exceeds the scope of digital-
currency portfolios. For the mortgage industry, block-
chain can be used to record the contractual terms and
conditions of all sales and purchases of real estate. It
can also affirm the identity of buyers and sellers along
with their assets, employment, investment income
and credit rating,
Blockchain can identify the chain of ownership of
property, including any liens, deed restrictions, ease-
ments and encroachments. The technology also sup-
ports investment into the resulting mortgage note
within the secondary market by any combination of
private and public investors.
Taken to its logical conclusion, when blockchain can
confirm who you say you are and confirm that you have
the necessary assets and income, and that there are no
deal-breaking encumbrances on the property being
transacted, then real estate transactions will become
completely paperless — and as fast and as easy as
a credit card transaction.
One area where paperless transactions will make
the most impact is digitizing title information. Here’s
what has to happen to make moving title information into blockchain economically feasible. In some
states and counties, title information is housed digitally in databases, while in others it is housed in paper
files across many county courthouses. With proper
funding, all of these public records can be stored in
blockchain. With few exceptions, however, the official
records would remain where they are today.
The value of digitizing title data is that it eliminates
the cost of dedicating a large physical space for paper
files, along with the staff to maintain those records.
Digital titles protect against the myriad problems that
ensue when titles are misfiled or lost or the old county
courthouse burns down.
More than a database
The value of blockchain goes far beyond simply using
digital databases. Blockchain provides the ability to
offer a uniform, instant check on title quality that is
national in scope. This allows a mortgage originator
or a lender offering a refinancing program an effective
way to accelerate the loan initiation by conducting a
low-cost, quick check early in the loan process.
The initial title search would tell a lender whether
the loan could be fast-tracked, processed normally, or
placed in a slow track to deal with liens, zoning issues
and other deed restrictions. This verification process
requires only a small investment to initially capture
and continually update the information in blockchain.
Other areas where blockchain delivers value in moving title data is with other financial services verticals,
namely the secondary market for mortgages and
the insurance industry. By incorporating feeds of
insurance-company policy claims into our hypothetical national title-data blockchain — such as adding
records of claims for fire damage, water damage,
earthquake damage, falling trees, landslides and wind
damage — the value of a national title-data blockchain repository would begin to soar.
This scenario benefits real estate developers,
buyers, investors within the secondary market and
others. Insurance companies also benefit, such as
those providers who write homeowner-insurance policies, flood-insurance policies that protect owner and
renter property, flood-zone determination policies
that protect note holders, as well as reinsurance companies that finance property and casualty insurance
companies by buying their risk in bulk.
n n n
There’s no doubt that blockchain will continue to
gain visibility and credibility in the financial services
industry. The title data example is just one of the ways
blockchain can modernize and enhance the mortgage
As banks, mortgage lenders and financial services
providers embrace more financial technology, blockchain can be used to propel the mortgage industry
into its digital future. n
protect against the
that ensue when
titles are misfiled
or lost or the old