Blockchain could help cut costs and redundancies in the mortgage process, according to a new report from Moody's.
The firm touched on the technology's promise in a new in-depth report that analyzes the impact of new technologies on the U.S. housing sector. While innovation in the years since the financial crisis has transformed a range of industries, the researchers wrote, housing has been mostly untouched.
That suggests a sizeable opportunity for blockchain applications to "streamline key mortgage processes, eliminate redundancies and reduce costs," the report's authors wrote.
For example, the tech could improve the monitoring of loan performance, the authors argued, while boosting the degree of transparency throughout a mortgage's lifecycle, allowing "mortgage insurers to transfer discrete mortgage credit risks to reinsurers and other alternative capital providers on a cost-effective basis."
Some of the most outsized benefits would come in the area of title transactions, according to the report, since blockchain platforms could reduce the number of necessary personnel and cut spending on commissions. A 10–20 percent cut in these expenses, the report estimates, would amount to $840 million–$1.7 billion in annual savings.
The report notes that some projects are underway to incorporate blockchain technology into the housing sector. It also references title registry trials undertaken by officials in Cook County, Illinois, and the city of South Burlington, Vermont.
The Moody's researchers do sound a note of caution, however, about the amount of data that can be processed at a given time through today's existing networks.
"One of blockchain's current limitations is the small number of transactions that can be processed within a period of time," they write, "based on the restricted size of the blocks and the high costs of using the technology."
The reference to block sizes appears to indicate the authors have public networks like bitcoin in mind. These are unlikely to be adopted in the near term, however, not just because of scalability, but because of regulatory concerns, which the Moody's report also highlights.
Regulatory agencies, it says, "want to ensure that those solutions do not create new risks for individual firms or the industry."
Mortgage and key image via Shutterstock