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Sep 11, 2018
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We’re banking that you’ve never attempted mortgage fraud. And if we’re right, you may be surprised to find out that pursuing—and succeeding in, if that’s the word—mortgage fraud is easier than you might imagine.
The allure of attaining properties with real value based on falsified information is just too strong for the criminally inclined to resist. Take, for example, the former loan officer who used his experience in the industry to participate in a mortgage fraud scheme that incurred more than $2 million in potential losses to the Federal Housing Administration. Sure, the guy was caught, and many more like him have also been outed as frauds. But even in the instances where the bad actors don’t get away with the crime, the damage is often already done.
A serious and increasing problem
The widespread, chronic issue of mortgage fraud becomes apparent when you look at the facts. Mortgage fraud has been shown to be on an upward trajectory, increasing year-over-year. CoreLogic’s 2017 Mortgage Fraud Report puts that incline in more specific terms, with 13,404 mortgage applications estimated to contain indications of fraud in Q2 2017 alone. Together, the rise in occupancy fraud, transaction fraud, and income fraud resulted in a 16.9% increase in the Mortgage Application Fraud Index in the one-year period between Q2 2016 and Q2 2017.
An outdated, time-consuming, paper-driven, inefficient mortgage screening and approval processes isn’t exactly waging a war on mortgage fraud, either. As results have shown, these systems are the equivalent of a musket going up against an F-16, which in this case represents the legions of potential fraudsters who risk their freedom in the pursuit of illegally-obtained properties. The system is rendered even more vulnerable by the reality that many loan officers are incentivized to clear loans due to commission-based systems. The combination of clever criminals, outdated regulatory and oversight mechanisms, and the occasional willfully negligent officer “looking the other way” has put the industry, once again, in the danger zone.
Proposing a innovative solution
Considering the implications of the national mortgage-based lending climate—2008 wasn’t so long ago—the fraud problem calls for a radical solution in defiance of the status quo. That’s precisely what Block66, a blockchain-based platform for mortgage origination processes, represents. Currently, the mortgage industry is shrouded in opacity, with few effective oversights. This is the primary feature that the Block66 platform seeks to rectify, using blockchain technology to deliver unparalleled transparency to an industry in dire need of a thorough window-cleaning.
As announced in a recent press release, Block66 will derive prospective borrowers’ relevant documents—financials, tax information, etc.—from their original sources and log them on the blockchain, where they will become unalterable and accessible by relevant, authorized parties. By making the blockchain the starting point for mortgage origination processes, users will be able to avoid the mountains of paperwork and deceptive practices which arise from the flawed legacy system.
“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.”
The immutable record will provide an audit trail accessible by lenders, brokers, regulators and borrowers. With verified documents on hand and collected from reputable agencies, opportunities and excuses for fraud will be replaced by hard, raw data by which sounder legal decisions can be made. Sure, opportunistic mortgage officials and opportunistic fraudsters won’t like the highly-transparent, tamper-proof system—but that’s precisely the point.
A faster, more inclusive process
Legacy mortgage origination systems have proven ineffective and time-consuming time and again, with the current process of screening and approval taking, on average, between 30 and 45 days. With a blockchain-based platform, Block66 believes that eventually the process can take as little as 24 hours.
If this is possible, it will represent the greatest cost and time-saving mechanism the industry has seen in quite some time, if not ever. But security and efficiency aren’t the only opportunities for improving the system that Block66 is eyeing. They will also incentivize greater participation by a wider range of lenders through the issuance of tokenized securities made possible through smart contracts.
“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.”
By adding this measure of liquidity, Block66 hopes that a larger pool of lenders will be more inclined to consider potential borrowers with credit scores residing in the “fair” range. Currently, it’s nearly impossible for these candidates to obtain mortgage approval, and the rates of approval don’t mesh with the modest credit level.
Block66’s Token Generation Event (TGE) will be held on Thursday, September 6th, with a target fundraising goal of $20 million.
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