Crowdsourced mortgages now available on the blockchain.
Research shows that whilst 80% of millennials want to buy their own homes rather than rent, the problem is that they are often unable to access favourable financial support. Popular opinion has perpetuated a myth that millennials don’t want to buy property and as such, as singlehandedly bringing down the housing market, but this is just not true.
Millenials DO want to buy property
As the economy is slowly improving, millennials are moving out of their parents’ homes, working in big cities, and instead of paying sky-high rents, they want to invest in bricks and mortar of their own. But as the cost of living increases, things like student debt and soaring property prices are making it tough for this generation to come up with the 20% down payment needed to buy a house. Michelle Meyer, a US-based economist at Bank of America Merril Lynch states that “we believe the delay in homeownership is due to tighter credit standards and lifestyle changes, including delayed marriage and children.”
Luckily, the disruptive power of blockchain technology is on hand to provide a useful tool for solving a wide range of economic and financial issues- this being one of them. Some innovative start-ups have come up with blockchain-based solutions which will make it much easier for millennials to get their foot on the housing ladder. But how is this possible?
P2P mortgage lending
Homelend is a new startup that is building a blockchain-based, peer-to-peer, mortgage lending platform that has the potential to completely revolutionise the traditional and stagnant mortgage industry. Blockchain technology is an integral part of a huge paradigm shift from a centralised economic model to decentralised peer-to-peer models.
Many millennials feed underserved by the current mortgage industry and are ineligible for traditional mortgage loans due to factors that are far beyond their control. The cost of further education can be astronomical and unless individuals have wealthy parents or exceptional academic abilities, most need financial assistance to attend university. Unfortunately, student loans can adversely impact an individuals credit score meaning that it makes it very hard for them to take out a mortgage, or even save up for the required deposit. The model of using a credit score to measure the creditworthiness of an individual is just not working anymore and tells something of an incomplete story. Millenials who have a job where their income is more than their expenses often find themselves locked out of the mortgage market as their credit scores are lacklustre due to a game that has been rigged against them.
The aforementioned Homelend is in the process of targeting potential homeowners and offering them a way to crowdfund their mortgage loan without needing the assistance of a traditional bank. Using a sophisticated algorithm for measuring an individual’s creditworthiness, Homelend is able to analyse data from social networks, shopping patterns, employment history and the traditional credit score to paint a more well-rounded view of the borrower’s creditworthiness.
The Homelend solution also provides a platform for interested people to invest in the mortgage process as lenders. This means that lenders can access an interesting and innovative low/moderate risk investment opportunity which offers the chance of a much higher yield than a bond or mortgage-backed security. The company is totally focussed on providing more homeownership opportunities for the new generation of borrowers, whilst being sure to meet and appreciate their distinct needs and lifestyle requirements
This level of disruption to the mortgage industry is unprecedented and such a blockchain-based solution will drastically cut the amount of paperwork and red tape that is involved in the mortgage process. Such a decrease in bureaucracy will, in turn, reduce the amount of time spent accessing, sending, and authenticating documents and will totally speed up the whole mortgage process.
Blockchain technology can also reduce the cost that is associated with the process. A buyer can expect to pay anything north of $2000 for things such as the title search, surveys, document preparation, and lawyers fees. By adopting technology such as smart contracts, a buyer could potentially save between $480-$960 and banks would be able to cut costs by around $3 billion annually by lowering processing costs.
Blockchain technology can also help to significantly reduce real estate fraud by making it literally impossible to present forged documents. By creating and storing digital ownership certificates on the blockchain, they become completely immutable and immune from fraud, editing, or deletion. They also cannot be replicated so users and buyers can be pretty certain that the documents, and the property they are buying, are all above board. Additionally, a blockchain-based solution can also reduce real estate fraud because both the buyer and the seller will be forced to follow the smart contract steps as they will be hardcoded and completely protected against tampering.
The use of blockchain in the real estate industry is going to create an impact that has never been seen before. Every aspect of the industry will undergo a massive streamlining and become much more efficient, more transparent, and significantly more accessible to people that were previously not able to gain a foothold. Of course, such disruption is bound to come up against some resistance from those institutions with something to lose, but it seems that the unstoppable force of blockchain is here to stay and nothing can stand in its path.
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