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Case Study: Mortgauge Loan Lending Process in Blockchain

This case study examines using blockchain technology to improve the mortgage lending process. Currently, the process is paper-intensive, time-consuming, and expensive due to the involvement of multiple third parties. Blockchain could streamline the process by securely storing all required documents and ownership records on a distributed ledger. This would allow banks to quickly verify information without direct communication with each third party. Smart contracts could further automate the process by executing funds transfers once conditions are met. The benefits would include increased transparency, reduced paperwork and processing time, and the ability to detect fraud.

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Rahul Desai
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161 views5 pages

Case Study: Mortgauge Loan Lending Process in Blockchain

This case study examines using blockchain technology to improve the mortgage lending process. Currently, the process is paper-intensive, time-consuming, and expensive due to the involvement of multiple third parties. Blockchain could streamline the process by securely storing all required documents and ownership records on a distributed ledger. This would allow banks to quickly verify information without direct communication with each third party. Smart contracts could further automate the process by executing funds transfers once conditions are met. The benefits would include increased transparency, reduced paperwork and processing time, and the ability to detect fraud.

Uploaded by

Rahul Desai
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Case Study

Case Title: Mortgauge Loan Lending Process in Blockchain


Mortgauge Loan is the process where a person can apply a loan against his
property like Land or Home from any Bank.

Scenario Description (with Diagram):


1) Existing process flow:
i. Current mortgauge process is heavily paper-based, labour intensive, time
consuming and expensive

ii. 3rd party service providers are involved where everyone will have an input
into the process, such as surveyors, solicitors, credit agencies, and title deed
offices for collecting various informations such as bank statements, proof of
income, existing loan information (if applicable), and consent for a credit report+
to be compiled by an external credit reporting company.

iii. To determine an estimated loan amount, the bank would also approach
surveyor to conduct a preliminary property evaluation, after which it can start
the credit approval process based on the information obtained from the buyer
and the various 3rd parties.

iv. Next, the bank would confirm the property ownership with land registry
offices as stated by the seller. A final property valuation will then be requested
from a surveyor so that it can be cross checked with the approved amount of
credit.

v. The bank can then notify the buyer and solicitors of its decision, after which
arrangements are made for the signing of the mortgage loan agreement and
mortgage deed. Once the documents are signed, the bank can initiate the
drawdown of funds and land registry offices can be informed to update title
deeds.The entire process may take 45-50 days.

2) Pain Points of existing Process

i. The traditional mortgage application process leads to 3 main problems:


increased costs, extended processing times due to number of formalities
involved, and lack of transparency.Current transaction flows require third-party
input from credit agencies to help assess loan eligibility, underwriters to
calculate and ensure the accuracy of mortgage drawdowns, surveyors to provide
up to date property valuations, lawyers to draw up legal documentation, and title
offices to confirm and update ownership.

ii. Each of these functions is likely to have a large team of administration staff to
deal with the physical paperwork. In 2015, PWC reported that “the average
mortgage application includes 500 pages, a number that has trended up rather
than down in recent years”. Although other reports suggest it could be as much
as 2,000 pages.
iii. Every intermediary the transaction goes through will add 1% to 2% of the
property’s value in their own fees to the overall cost. But it’s not only fees they
add, each of them also adds additional days of their own processing time,
leading to a long, drawn-out process.

iv. Finally, there’s the lack of transparency over the required application
documentation. Bank accounts, title deeds, and government records are held by
separate institutions. When a person applies for a mortgage, brokers, credit
agencies, bank personal and other 3rd party agents will need access to this
information in order to determine if a loan should be approved. Access is usually
provided through manual processes, like sending an email request and then
receiving the information by email a few days later.

v. Once a mortgage is approved, this same information needs to be updated with


every agency, i.e. the title deeds need to show that the property has changed
hands, the bank will now keep a record of the mortgage against your name so
credit agencies can access this in case of future loan applications. This is again
done manually and every time information is passed along, it moves from one
ledger to another. This not only requires additional third-party agents to confirm
these transactions but it means this paper-based, mostly manual, process is
prone to human error, leading to further delays and cost accumulation.

3) Blockchain in Mortgage Process


The above diagram shows how the transaction will be taking place under the
blockchain network where all the parties including Bank, Thirdparty agencies,
Surveyer would be acting as nodes of the blockchain network.
To approve a line of credit, banks rely on accurate information from surveyors,
law firms, credit agencies, etc. If all of the required information is securely stored
on a distributed network with each agent updating their part of the information,
banks can easily retrieve the various pieces of information they need from this
network, without having to rely on individual, paper-based communications to
each of the 3rd party providers. This includes digitized copies of legal
documents, property valuations, and title deeds.
Blockchain can be used to create a digital ID for each property, therefore making
the property traсkable on the network. Apart from making the real estate market
more liquid, purely from a mortgage application perspective, this digital ID would
include a chain of ownership and current market valuation that will allow banks
to quickly verify the current ownership status or confirm the market price,
potentially mitigating the need of going through title deeds and engaging with
surveyors.
DLT could also take it a step further and remove the need for certain
intermediaries through smart contract application. Smart contracts can be pre-
programmed to only execute upon completion of certain conditions, such as
requesting funds to be released to the seller only once the mortgage
documentation has been digitally signed, the borrowing bank has approved the
mortgage and funds have been transferred to the seller’s bank.

Technical Feasibility:
i) Ubuntu v18.04
ii) node js v8.10.0
iii) docker v18.06.1
iv)goLang latest version.
v) Hyperledger Fabric.

Benefits Summary:

1) Can be used by a Middle class person for lending a Home/Shop and any kind
of property loan.
2) Can be used by Farmers to lending a loan against his land.
3)Entire process is transparent to all the nodes.

4) Paper work would be reduces due to algothirms and smartcontracts.


5)Process can be completed and loan can be granted within 4-5Days due to data
synchronization.

6)Fraud or Data manupulation can be easily tracked.

By using Blockchain over tradational centralised system entire end to end


process flow can be transparent and fast.

- By Rahul M. Desai.

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