Mortgage lenders discuss the intersection of blockchain and housing finance

Increasingly, the business world is considering adopting blockchain and many of its underlying, novel technologies. Some market observers touted it as a "Great Disruptor"¹ – akin to the emergence of the internet – but that's been said about a number of emerging technologies before, including blockchain in 2017. What, if anything, has changed about this particular technology, and what makes today's blockchain discussion different, particularly among stakeholders in the housing finance industry?

To help answer these questions, it's worth looking more closely at blockchain's current usage in the financial services space and its perception among housing industry stakeholders. To better understand the latter, Fannie Mae's Economic and Strategic Research Group asked senior mortgage executives for their opinions on blockchain technology, including whether they plan to adopt it and its potential impact on the housing industry.

How is blockchain being used today?

Led by consumers' use of cryptocurrencies, blockchain has become fairly mainstream. Networks like Visa and Mastercard have introduced crypto-related capabilities to their product offerings. And consumer-facing brands like Starbucks, Best Buy, GolfNow, and Choice Hotels have entered partnerships to provide consumers with the ability to pay with cryptocurrency.

Additionally, the number of institutional investors participating in cryptocurrency markets has increased, and investment in blockchain-related firms continues to grow dramatically. These markets now include everything from cryptocurrency products for retail investors, to corporations purchasing cryptocurrency to hold on their balance sheets, to entirely new blockchain markets being created to cater to institutional investors. According to a recent CB Insights report, U.S. funding of blockchain startups grew 729% from 2020 to 2021. And blockchain and crypto have been one of the leading verticals for fintech investment by U.S. banks since 2010. Even the government is exploring ways of leveraging blockchain².

Smaller factors are also playing a greater role. Blockchain-focused companies are going public to help bring financial reporting transparency to businesses. Large technology providers, including Amazon³ and Microsoft⁴, are adding blockchain solutions to their product suites to help customers more easily experiment with the technology.

What are mortgage lenders saying?

Using our Mortgage Lender Sentiment Survey® (MLSS), we surveyed mortgage lenders on a variety of topics related to blockchain, including its adoption, application, and potential future usage. These are some of the highlights of the report:

• Even with all the recent headlines about blockchain, only 25% of lenders said they were familiar with the technology and its possible applications in the mortgage business.
  • A majority of lenders (68%) said they have not yet looked into the technology.
  • Of the 20% of lenders that have looked into blockchain, 41% said they plan to adopt it within four years.

• Lenders cited blockchain's potential use for borrower and collateral data as having more applicability than its use as a potential financial instrument.
  • Respondents were most intrigued by the idea of a digital wallet containing borrower information enabling "direct-to-source" validation, followed by a title registry for search and validation to complete title/property transfers.

• Although familiarity with blockchain is low, approximately 40% of lenders believe decentralized finance (DeFi) has high to very high potential to disrupt incumbent financial institutions.

• While cryptocurrencies often garner the majority of blockchain headlines, only 31% of lenders believe that mortgage companies are likely to accept cryptocurrency from consumers as mortgage payments over the next three years.

It's not particularly surprising that lenders would favor applicable use cases involving property and financial information. Not only have they been broadly discussed over the years (both with and without blockchain), but several startups have already attempted to build relevant products, though these have not yet achieved broad market adoption.

Perhaps more surprising is that only about one-third of mortgage lenders are likely to accept cryptocurrency from consumers as mortgage payments over the next three years. With the popularity of cryptocurrency skyrocketing recently among consumers, some might think that more lenders would be willing to accept it. However, the volatility of cryptocurrency pricing and the level of investment necessary to accept cryptocurrency may be limiting lender adoption.

What do these results mean for housing and Fannie Mae?

First, it seems prudent that mortgage lenders educate themselves about blockchain technology and its potential application within the mortgage industry. They might do this, in part, by monitoring blockchain activity across the larger financial services industry to better understand its use cases and its applicability to their particular business processes.

Lenders interested in adopting blockchain might also consider finding partners with aligned interests to help them successfully execute their blockchain use cases. Our survey showed that, of the 20% of lenders who have investigated blockchain, 41% plan to adopt it within four years. Generally speaking, for blockchain use cases to be successful, multiple parties need to be involved, and as such these early adopters might look for partners to help them scale their solutions.

As we do with all emerging technologies, Fannie Mae continues to monitor blockchain and assess its potential to increase transparency and reduce risk for our business, our industry partners, and, most importantly, for consumers.

To learn more, read the research deck or access our infographic.

March 21, 2022
Ryan Jackson, Director, Fannie Mae Enterprise Innovation Team

The author thanks Li-Ning Huang, Stephen Gilbert, Jolene Lester, and Matt Classick for their partnership in this research and commentary. All errors remain the responsibility of the author.

¹ Slalom: How Blockchain Will Disrupt Your Industry

² Federal Reserve: Money and Payments: The U.S. Dollar in the Age of Digital Transformation

³  Amazon Managed Blockchain

⁴  Microsoft Azure Blockchain

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) group or survey respondents reflected in this commentary should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group or survey respondents as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.