Building A Mortgage Blockchain Ecosystem
The residential mortgage industry has a mixed record on adopting new technology. To be sure, there have been important innovations at the borrower interface level (e.g., application process; ability to convert document images to editable data) and at the GSE level (e.g., automated decisioning on underwriting and property inspection). Nevertheless, the mortgage industry remains a highly complex and interdependent ecosystem still characterized by manual processes and redundant data verification. The resulting duplication of effort delays timelines to originate, securitize and invest in mortgage loans. These inefficiencies are particularly evident in the non-Agency sector of the mortgage business, which has a distinct set of regulatory, rating agency and market-driven requirements compared to the government-sponsored Agency market.
At Redwood Trust, we work in close coordination with originators, servicers, trustees, third-party due diligence firms, rating agencies, warehouse lenders, securities investors, and whole loan investors. Our business is focused on the non-Agency mortgage sector and, as a result, we believe we are in a unique position within the mortgage ecosystem to evaluate and implement actionable improvements across the non-Agency space. The core objective of this work is to make non-Agency mortgages faster and cheaper to originate, underwrite and securitize, thereby increasing liquidity for investors without compromising production quality and, ultimately, enabling borrowers to access more competitive risk adjusted rates.
For over 25 years, Redwood Trust has been a leader in the non-Agency RMBS market, both as a nonbank issuer and credit investor. We have transacted with over 200 institutional investors in our Sequoia securitizations, and over 60 distinct whole loan investors. We have issued over 100 securitizations and bought loans from over 190 discrete mortgage originators. As a result, we care deeply about making the process of securitizing and investing more transparent, including through reduced friction and redundancy, which we believe will ultimately increase liquidity for homeowners and expand the private sector’s role in the housing finance industry.
Blockchain technology has received great fanfare across the financial technology world, but efforts to incorporate blockchain into the world of residential mortgages have run into the practical divide between exciting theory and what is actionable. This paper reflects Redwood’s view of the potential for blockchain technology to improve the mortgage ecosystem and to shape the next generation of workflows. We are not proposing to re-invent the entire mortgage ecosystem in one fell swoop, as ours is a more incremental approach that we feel is realistic, feasible, and in many ways inevitable.