Millennials Can Now Buy Homes with Crowdsourced Mortgages on Blockchain
The results of a 2017 research by Apartment List shows that 80 percent of millennials do desire to buy and own homes – contrary to popular opinion that many millennials prefer to rent houses than to buy.
The myth that millennials are not interested buying homes was especially promoted by false news reports that many millennials would rather buy avocado toast (or its equivalent wasteful expense) than save for a down payment.
Interestingly, the economy seems to be improving, millennials are moving out of their parents’ basements, more millennials are working in cities, rents in cities are on a consistent uptrend. Now, the thought of owning a home is becoming more appealing to millennials.
However, rising costs of living, student debts, and soaring property prices aremaking it hard for millennials to come up with the traditional 20 percent down payment necessary to buy a house. Michelle Meyer, a US economist at Bank of America Merrill Lynch observes that “we believe the delay in homeownership is due to tighter credit standard and lifestyle changes, including delayed marriage and children.”
Thankfully, the disruptive power of blockchain technology makes it an excellent tool for solving many economic and financial problems. Now, some innovative start-ups are coming up with blockchain-based solutions that might make it easier for millennials to get started on home ownership. So how is this actually possible?
Homelend to introduce innovative P2P mortgage lending
Homelend is building a mortgage blockchain-based, peer-to-peer mortgage lending platform with a potential to disrupt the traditional mortgage industry. Blockchain is promoting a global paradigm shift from centralized economic models to decentralized peer-to-peer models.
Many millennials who are “unserved” and “underserved” by the traditional mortgage industry are “ineligible” for traditional mortgage loans because of factors beyond their control. The cost of college is astronomical, unless you have parents with deep pockets or have exceptional athletic/academic abilities, you’ll most likely need to take on student loans to go tocollege.
Unfortunately, the student loan burden weighs down your credit score and makes it incredibly hard to save up money for a down payment – hence, the “illegibility” for traditional mortgage loans.
Unfortunately, using the credit score as the sole measure of the creditworthiness of millennials tells an incomplete story. Millennials who have a job, whose incomes are more than their expenses, and with decent odds of upward mobility are locked out of the mortgage market because they havea low credit score in a game that has been rigged against them.
Homelend, is targeting potential homeowners (especially millennials) by providing them a platform to crowdfund their mortgage loan without collecting money from a traditional bank. Using a more sophisticated algorithm metric for measuring creditworthiness, Homelend can use data from social networks, shopping patterns, employment history, and the traditional credit score to paint a more robust picture of borrower’s creditworthiness.
Homelend’s solution also provides a platform for interested people to invest in the mortgage process as lenders – lenders find an interesting low/moderate risk investment opportunity, which will potentially offer higher yields than bonds or mortgage-backed securities. In the words of Itai Cohen CEO and Co-founder of Homelend, the company is focused on “expanding homeownership opportunities for a new generation of borrowers, meeting their distinct lifestyle and needs.”
How much disruption can blockchain bring to the mortgage process?
The disruption that blockchain technology could potentially bring to the mortgage industry is unprecedented. To begin with, a blockchain-based mortgage solution will drastically cut the volume of paperwork and bureaucracy involved in the mortgage process. A reduction the volume of paperwork will in turn reduce the time spent accessing, sending, and authenticating documents; hence, the mortgage process will become faster.
Secondly, blockchain can reduce the costs involved in the mortgage process. Buyers can expect to pay between $2000 and $5000 in costs on stuff such as Title Search, Title Insurance fee, document preparation, pest inspection, lead inspection, and lender’s attorney fees.
In a recent report, researchers at Capgemini Consulting noted that,“the mortgage loan industry will benefit significantly by adopting smart contracts. Consumers could potentially expect savings of $480 to $960 per loan and banks would be able to cut costs in the range of $3 billion to $11 billion annually by lowering processing costs in the origination process in the U.S. and European markets.”
Lastly, blockchain technology can also reduce real estate fraud by making it practically impossible to present forged documents. Digital ownership certificates created and stored on the blockchain are impossible to replicate. In addition, a blockchain-based solution can reduce the occurence of real estate fraud because both buyers and seller are forced to follow the procedures hardcoded into smart contracts.
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