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As the 2008 financial crisis brought into sharp focus mortgage fraud is rampant, and the consequences of widespread mortgage fraud can be destructive on many levels. Sadly, mortgage fraud is back on the rise. According to CoreLogic, the increase in applications displaying mortgage fraud are likely to be a continuing trend.
Bridget Berg, Principal of Fraud Solutions Strategy at CoreLogic stated that this past year we saw a relatively significant increase in the CoreLogic National Mortgage Application Fraud Index. If factors that influenced the increase continues, including a shift to purchasing transactions and growing wholesale channel origination activity, it is likely that mortgage application fraud risk will continue to increase too.
Even though there are severe penalties for mortgage fraud such as 100 years in jail, apparently this is not a sufficient deterrent. But now, the company Block66 believes that blockchain would function as the basis for a solution to end mortgage fraud once and for all.
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Recently Block66 announced the creation of a platform whose goal is to decrease mortgage fraud by injecting the mortgage origination process with a heavy dose of transparency and tamper-proof controls.
Block66’s blockchain technology will be used as a mortgage hub, serving as a one-stop shop where parties who need they can access borrowers’ pay stubs, financial information, tax documents, and personal identifiers.
By procuring these documents from their original sources and storing them on the blockchain, the platform will represent an immutable, trustworthy, and interoperable resource that is far less vulnerable to those wishing to commit fraud.
Joe Markham, founder and CEO of Block66 explained that Block66 was built to provide new opportunities for borrowers and put a stop to the time-consuming and paper-driven processes in the mortgage industry. Markham added that their platform would make it easier for everyone to find what they need so that mortgages can be approved and funded more rapidly. By storing the history of each transaction on the blockchain, the platform will offer a valuable audit trail for lenders, which will help reduce mortgage fraud.
On top of being transparent, the other component of a blockchain-based mortgage origination platform is transactional speed. In the current market, the mortgage vetting and approval processes are tied down by outdated systems that require the transmission of physical paperwork between parties, which are all tasked with doing their homework to figure out whether figures are accurate and the information is correct.
What’s more, even though these processes often take between 30 to 45 days, they have proven ineffective overall when it comes to vetting fraudulent applications to an acceptable degree. For this reason, Block66 is suggesting a bottom-up change to the system, renouncing seemingly endless paperwork for a simpler, more transparent system based on blockchain technology.
Not only does mortgage fraud put lenders, brokers, and borrowers at risk, it can also artificially raise housing prices in the market, indirectly affecting other would-be borrowers.
Of course, nobody wants to experience a repeat of the 2007-20088 financial crisis, but as of now hardly anything has been done to ensure another disaster doesn’t happen. But Block66 is hoping that considering the stakes of oversight in the real estate lending sector, adoption of their platform and those like it becomes mainstream.
Block66 is looking to incentivize participation by tokenizing securities, enabling smaller-scale lenders to have a measure of liquidity.
Markham explained that the idea behind mortgage tokenization is to bring in smaller lenders. These lenders are often hesitant to tie themselves to more extended repayment plans but are more willing to lend capital to customers who aren’t always favoured by traditional banking institutions, even though they are credit-worthy.
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When preparing news, materials from the following publications were used: