On September 5, 2019, Caliber Home Loans – a leading American mortgage company, became the first creditor outside of Figure (the creators of blockchain-based platform Provenance) to provide home equity loans directly via blockchain. Caliber, which chose Provenance for the transaction, promises to offer customers a smoother experience while reducing risks and cutting down on long waits. Sanjiv Das, CEO of Caliber Home Loans, said his company was pleased to offer a groundbreaking product: “We think the ease and speed of this process are truly unique. Unlike traditional home equity lending timeframes which often stretch out for weeks, our borrowers can now complete the entire process digitally and access their funds in days.”
Figure SaaS Sparks Interest in Digital Lending
In order to offer home equity credit, Caliber is licensing Figure SaaS: a blockchain system that originates loans. Although Figure is starting out with home equity financing, the aim is to eventually offer a wider series of debt arrangements based on digital assets. One area that could benefit from blockchain technology are mortgages, which are currently one of the most time-consuming financial transactions Americans have to face. As stated by Forbes’ Breana Patel, “The current mortgage lending process is time-consuming and requires a series of third parties to confirm documentation. And each step of the process adds time and expense.” Blockchain can cut through the red tape by allowing users to store crucial documents in a distributed network that is more secure than Cloud storage. The data would be easily and instantly accessed, reducing work that may take a matter of weeks, to one of seconds.
How can Blockchain Speed Up Home Equity and Mortgage Loans?
Blockchain can significantly reduce the amount of time invested by both borrowers and lenders. Because all relevant documentation will be available on the chain, both parties can easily access documents while cutting the costs and time that increase when dealing with third parties – such as lawyers or banks. This technology can also prevent the time wastage that occurs when each party to a transaction is forced to source information. As all relevant documents are ‘shared’, verification can be achieved in just seconds.
Improved Access to Finance
By including unbanked customers in the formal financial system, blockchain and mobile are estimated to generate a revenue of $380Bn by 2020. Blockchain promotes financial inclusion in many ways – for instance, by giving people a digital identity while allowing them to maintain their privacy. Its many benefits include support of smart (multiple-asset) transactions, lower operational costs, the securing of a transaction ledger database, and a reduction in the time for settlement.
The Role of the Government
To speed up home equity and mortgage lending further, government agencies will also need to embrace blockchain technology. If all relevant documents such as liens, title deeds, and all key public records were available, the time involved with completing many financial transactions would be considerably reduced. Moreover, all relevant amendments would be recorded on the chain and be immediately accessible to all parties with access to it. Some municipalities in the U.S. – including South Burlington in Vermont – are already experimenting with the use of this technology for real estate transaction.
Key Precautions to Take
Caliber’s move makes transactions easier and quicker for clients, but the company will also need to ensure that a strict control framework is set up. Regulations specifying who has access to information is one key step to ensuring that vital information isn’t leaked to third parties. Cybersecurity will also need to be watertight since blockchain is ultimately vulnerable to the same issues that make computers and mobile devices susceptible to malware. Essentially, every time users enter their key, hackers can potentially capture it. This issue can be counteracted via reliable antivirus software, repeatedly running malware scans, and storing keys in an encrypted form. One of blockchain’s main handicaps, experts argue, is the fact that it is still at a nascent stage. There are still a number of cyber safety issues that need to be solved before a wider majority of individuals trust blockchain as a safe solution.
It is a unique time in history for home equity borrowers and lenders, with Caliber’s new blockchain home equity loans leading the way in terms of speed and practicality. Home loans can take up to a month from application to closing – sometimes even more, depending on the complexity of the transaction. One of the reasons for delay is the many documents required. Having documentation on the chain can make it easy for all parties to access crucial information and speed up approvals or denials. The creators of blockchain-based platform Provenance are already working on offering blockchain technology for a wider range of transactions. Although trust from governments will be required for this technology to take over key areas of financing, the first crucial steps have already been taken.
