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.
The mortgage finance system is always evolving, with participants continually searching for new, more efficient ways to do business, and make homeownership affordable and rental housing available to more families. As the largest source of capital for low- and moderate-income families and veteran homebuyers, it’s Ginnie Mae’s responsibility to stay abreast of market and business process innovations in order to successfully lead the industry to be more forward-thinking and adaptive. That responsibility is what led Ginnie Mae to launch its Innovation Lab in 2019.
Ginnie Mae’s Innovation Lab was created as a tool to support the evolution of programs, products and services that relate to our participation in the mortgage finance industry. A more robust innovative function will allow Ginnie Mae to systematize innovation across the enterprise, helping to bring more high-impact solutions to life in a more proactive manner.
This is accomplished by providing an isolated facility to intake, experiment and scale new emerging technologies to conduct “Greenfield Projects” and evaluate solutions for further investment, all with the ultimate goal of solving Ginnie Mae’s most pressing and challenging business needs. Examples of innovation opportunities include the use of cloud technology, robotic process automation (RPA), DevSecOps, artificial intelligence and machine learning, and predictive analytics and cognitive search.
It is important to note that innovation labs work varies, as industries and companies are trying to accomplish different goals and operate in different environments. At Ginnie Mae, our lab will focus specifically on bringing cutting-edge industry solutions and fostering a culture of innovation amongst our employees.
Ginnie Mae Innovation Lab matches the work of other companies committed to bringing in technology to make business more efficient. Most observers trace this approach back to Lockheed’s fabled “Skunkworks,” and have heard of this strategy being deployed in private sector companies, with little awareness of it being applied in the public sector. The public sector is very active, however, especially at the federal and GSE level, with USAID, NASA’s Solve Program, AFWERX at the Air Force, and the VA Center for Innovation as a examples of established innovation labs or teams.
Establishing an Innovation Lab is not without challenges, either in the public or private sectors. One of the most difficult aspects is convincing leadership that the lab will be additive to their programs as a service provider to help the organization find modern solutions to challenges. When Ginnie Mae launched its Innovation Lab, senior leadership knew that not every project would end in success. After all, by its very nature, innovation involves a degree of uncertainty and risk, so managing failure is an important element of the lab’s success. Ginnie Mae leadership pressed forward knowing that the most effective innovation programs take on a blend of transformational, homerun swing projects along with a more incremental, quick-win approach. Having a centralized innovation capability will allow Ginnie Mae to “fail” and move on from nonviable ideas more quickly and efficiently, while also making sure it’s capturing and consolidating what it learns from unsuccessful efforts so that it can use these insights moving forward.
Ginnie Mae leadership sees the inherent value of the Innovation Lab and strongly believes that the lab will see greater investment as Ginnie Mae advances its modernization, transformation and next-generation programs.
While leadership support is essential, staff buy-in is critical, too. Ginnie Mae structured the lab in such a way to make sure employees at all levels have the opportunity and resources to help them innovate; part of this will be accomplished through the launch of prize challenges and using the Lab space to test solutions with actual Ginnie employees. Moreover, leadership believes the Innovation Lab will enable the growth and development of talent across the organization.
As we all enter a new decade, Ginnie Mae is entering an exciting phase of its technology modernization with the Innovation Lab project. We have strong and reasonable expectations for the effort and are confident that the investment of staff and money will grow our mission of making the most efficient secondary mortgage market possible on behalf of government mortgage borrowers and American taxpayers.