Ginnie Mae is among the organizations across the public and private sectors that are finding a growing number of applications for blockchain that increase the security, efficiency, and speed of digital transactions. Ginnie Mae is in the process of establishing a blockchain workgroup consisting of Ginnie Mae technology and business members and participants across U.S. Federal Housing-related agencies.
At its simplest, blockchain is a way to authenticate, record and track decisions across a network of blockchain participants’ computers. While organizations have recorded transactions in ledgers for centuries, those ledgers have traditionally been isolated to protect their accuracy, with each entity involved in the transaction maintaining their own separate record. Blockchain allows all entities to access a single digital ledger that is updated in real-time and is irreversible, decentralized, and transparent. By eliminating redundancy and compliance burdens and increasing trust across parties, blockchain offers the potential to accelerate and lower the costs associated with transactions across sectors. Reducing costs in the mortgage finance system while ensuring safety and liquidity is at the center of Ginnie Mae’s mission.
As blockchain has matured, Ginnie Mae has come to view the technology as a critical opportunity for innovation. In the home lending, private sector financial service companies are using blockchain-based platforms to encrypt and protect data exchanges between lenders and borrowers in real-time. Importantly, innovations involving blockchain are taking aim at increasing transparency, accelerating capital deployment, and overcoming geographical barriers to lending.
Bringing Blockchain to Ginnie Mae
Ginnie Mae’s Innovation Lab, which explores emerging technology applications to Ginnie Mae’s mission and operations and develops proofs of concept for testing within the organization, is conducting a preliminary analysis of how blockchain might be used to reduce cost, reduce risk, enhance stakeholder’s experience, improve liquidity and meet the needs of the evolving mortgage industry.
Smart Contracts Evolve Legacy Technology Concepts
Traditionally, government regulations and requirements for loan pooling across U.S. agencies have been enforced by computers using batch processes to validate that loans in a set of pools meet the specified criteria for the government guarantor loan program. This standalone, multi-step process mimics the even older process of reviewing each lender’s submitted loan documents for acceptance into a government approved loan pool. Blockchain capabilities provide opportunities to develop and examine multiple variants and modeled scenarios to meet various home buyer, seller, guarantor and investment needs. When we look at the life cycle of a mortgage through a new technology lens, there is potential to be able to embed the guarantor loan acceptance criteria further up the lending process with digital technologies that connect core elements of property borrower and lender information. This provides the ability to examine and identify eligible combinations of borrowers, properties, lenders and pools.
Blockchain to Reduce Work, Paper, Time, and Risk
Looking at the U.S. Federal Housing information life cycle , it’s estimated that a permissioned, distributed ledger using blockchain could significantly reduce data transactions timelines. This is due to the efficiencies created by decreasing the number of times the same information is captured, transferred, stored and reconciled across the mortgage origination-to-securitization process.
Blockchain may provide Ginnie Mae greater information security controls through a permissioned, role-based network. In addition, a distributed ledger design will improve process efficiencies by a reduction in data handoffs from stakeholder to stakeholder in the Ginnie Mae loan pooling process.
For example, a distributed ledger design will reduce the current data movement from stakeholder to stakeholder with a double benefit of; 1) reducing the cost for each stakeholder to store, verify, and transit data, and 2) reduce information latency by each stakeholder accessing shared, updated data immediately once entered or altered within the government guarantor mortgage ecosystem.
Ginnie Mae is only at the beginning of its Blockchain exploration and looks forward to its research and findings to ensure that this technology will bring significant improvements over the long term for participants in and beneficiaries of the government backed MBS market.