Not known for being the swiftest afoot, especially when it comes to snuffing out potentially hazardous mortgage lending practices, the Federal National Mortgage Association—also known as Fannie Mae—has reached out to lenders in the L.A. County area to alert them to potential mortgage fraud schemes. The implications of this warning shouldn’t be underestimated.
Fannie Mae advised lenders to “exercise due diligence in reviewing the entire loan file” after disclosing fraud schemes in which 34 “apparently fictitious employers” were being used as a means to acquire mortgage approval. What’s more concerning, the fact that it took the intervention of the federal government agency to uncover 34 made-up employers? Or the obvious implication that loan origination agents were either duped by or complicit in these schemes?
As depressing and alarming as that question is, consider this: there’s no chance that Los Angeles County is the only municipality in the States where such schemes are taking place. Mortgage fraud is one of the most popular forms of fraud, and it’s a chronic problem with potentially devastating economic outcomes.
A System That Doesn’t Work
Other outlets that specialize in monitoring the prevalence of mortgage fraud confirm the perception that the problem is widespread and largely unchecked. In the most recent 12-month period recorded, fraud risk in the mortgage origination field was up 16.9%, according to CoreLogic. The figure was gleaned from the fact that, in 2016, 1 in every 143 loan applications contained signs of fraud. In 2017, that ratio was greater, with 1 in every 122 applications showing signs of fraud.
The implication is clear: whatever systems are being relied upon to flag, prosecute, and generally discourage mortgage fraud are ineffective. Worse, the process is time-consuming, which is analogous to money-consuming. Currently, the end-to-end loan origination process can take anywhere from 30 to 45 days. In short, mortgage fraud is rising, and the systems intended to prevent that fraud are as dated and ineffective as ever.
So, what’s to be done?
Fixing the Problem with Blockchain Technology
Block66 is a blockchain-based solution aimed at resolving the mortgage fraud problem once and for all. They see archaic systems where paperwork must be filled out, gauged for authenticity, and transferred between centrally-located authorities as partially to blame for the broken system of mortgage fraud prevention.
Conversely, the Block66 platform, which was recently announced, derives the necessary documents—financial, tax, and otherwise—from original sources and stores them on the blockchain, where they become immutable.
“We created Block66 to offer new opportunities for borrowers and end the time-consuming and paper-driven processes in the mortgage industry,” said Joe Markham, founder and CEO of Block66. “Our platform will make it easier for everyone to find what they need, so mortgages can be approved and funded faster. By storing the history of each transaction on the blockchain, we will provide a valuable audit trail for lenders, which will help mitigate mortgage fraud.”
Post-recession legislation, prison terms for real estate representatives caught bucking the rules, and the threat of a significant economic downturn have not served as deterrents from the fruits of successful mortgage fraud schemes.
Block66 sees this as a clear indication that it’s time to try something drastically different, and the transparency, security, and interoperability offered by blockchain technology could mean greater oversight, lower costs, and more efficient decisions regarding mortgage origination.
In the future, Block66 will also offer tokenized securities to lenders through blockchain-based smart contracts. Lenders will be able to trade these tokenized assets in exchange for other tokens or cash on exchanges, representing an additional store of liquidity that they would not otherwise be privy to. They will offer this service with specific lenders in mind.
“The idea behind mortgage tokenization is to bring in smaller lenders,” said Markham. “They are often reluctant to tie themselves to longer repayment plans but are more willing to lend capital to customers who aren’t always favored by traditional banking institutions, even though they are credit-worthy.”
With more lenders in the pool, Block66 hopes that the underserved community of potential borrowers with only a fair credit score will be granted greater opportunity to obtain a loan—on responsible terms, of course. The Token Generation Event (TGE) will be launched on Thursday, September 6th with a target funding round of $20 million.