How lenders are using small, private blockchains

While the industry awaits the day when blockchain-based mortgages become commonly used, players in it are increasingly finding ways to set up and use the shared, immutable databases on their own.

"Everybody thinks, well, I'll implement when the top five banks do, and the top five banks are saying, well, there's not enough juice in this for us too," said Souren Sarkar, president and co-founder of fintech and outsourcing firm Nexval. 

With widespread use of blockchain being a daunting prospect, Sarkar said he expects the technology will increasingly be adopted by involving limited processes and parties.

"Not everyone wants to be on the public blockchain," he said. "Some people just want to keep it internal to themselves, and some people want to be communicating with their closed consortium."

Mortgage technology

Opening up AI's 'black box' with blockchain technology

The ledger technology can make artificial intelligence systems more transparent, some industry stakeholders say.

Given the constraints on originations, the biggest draw in blockchain in the current market may be its efficiencies, which Sarkar said can be appealing when it comes to vendor management in particular.

"Appraisal management, REO management, management of title providers, these are some of the innovative kinds of applications we're building on blockchain," he said.

Those technology implementations aim to handle contracts with third parties more efficiently than other automation.

"They're having to spend a lot of time [on these contracts], and some of these appraisal companies and REO companies are really small shops, maybe 10-15 people, but they have two people just doing just that. So it can create an immediate efficiency impact," Sarkar said.

Mortgage companies might want to look at any new systems they're looking at implementing and consider whether they should build it on a blockchain type data structure rather than a traditional one, Sarkar said.

Private blockchains created in the current market could become part of a broader effort in the future or remain independent, Sarkar added.

"The next step of this, which hasn't happened yet, is a number of companies in the space can get together and decide to do some sort of data sharing," said Sarkar.

Ideally, broader use of public blockchain should lie in the industry's future, but the way the mortgage industry is set up, that will likely continue to be easier said than done.

"People usually pull back to the old technology rather than pulling forward, and the reason for that is we are essentially controlled by some centralized actors and players," Sarkar said.