Distributed Ledger Technology in the Mortgage Industry

March 3, 2021
Kourtney Manley

The pandemic-influenced transition of the mortgage industry in 2020, from in-person meetings and manual processing, to automated end-to-end self-service for the customer and the lender, was an abrupt change and for most lenders & brokers, unplanned.  The urgency to transition quickly did not allow for in-depth research and purposeful discussions regarding options for the required technology. Instead, it is likely that hasty decisions were made to minimize disruptions in the business as usual flow.

Social distancing created obvious hurdles to overcome, such as customers completing the mortgage application and submitting required documents for verification, lenders sharing the documents with third-party vendors as evidence of information accuracy, and storing the documents per retention and audit regulations. When considering what technology could be used, lenders had to determine what they needed to accomplish with the technology and how to do it efficiently while protecting the integrity of the data.

A Centralized database runs everything through a single point of contact which distributes it out for access to anyone with an encrypted code (commonly known as a hash) to unlock and access the information. Currently, the centralized base technology is most widely used although it is a slower process and vulnerable to cyber risks. A breach in security at a single point of contact would disable the entire system and present a real security threat. Distributed Ledger Technology (DLT) is the more desirable option, it is a decentralized database where all users with an encrypted hash have full access. DLT activity is immutable and the security risk is very low.

So why is DLT the desired database for the mortgage industry?

  • Hash access to the process, validate, or authenticate data activity
  • Enables transparency, an accurate audit trail & minimizes the risk
  • Real-time credit bureau responses and legal property records
  • Reduces time-consuming paper shuffle
  • Eliminates paper document retention (Go Green)
  • Expedites end-to-end mortgage process
  • Cost-effective – No service fees
  • Protects confidential information

Currently, the most popular type of DLT is blockchain, however, fintech companies are exploring options to develop more innovative, efficient, and cost-effective methods for maintaining a digital transaction ledger.

Written by Kourtney Manley, Business Analyst at OnlineApplication

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