Blockchain technology could make its way into certain components of mortgage servicing if the agreement between Sagent Lending Technologies and Figure Technologies works as planned.
“We’re partnering with Figure to bring our deep mortgage servicing expertise together with their modern tech stack and their Provenance Blockchain to essentially create new technology,” said Sagent CEO and President Dan Sogorka.
As part of the deal, Figure’s mortgage servicing portfolio will move onto Sagent’s platform. The second part involves bringing mortgage assets onto the Provenance Blockchain that Figure developed.
Blockchain can be used in the servicing process in several ways, Sogorka said in an interview. This includes modernizing the consumer service and contact aspect of servicing. Sagent is collaborating with Figure on how it engages consumers and makes use of artificial intelligence.
The actual function of servicing a mortgage, which typically occurs on a mainframe computer, can also employ blockchain technology.
“We’re on record saying very strongly that we want to modernize that as well,” Sogorka said. “So we’re going to do that with this partnership.
He pointed out Figure already uses the Provenance Blockchain for its home equity and student loans which allows investors to have access and visibility to the information.
“We think that model can work for mortgage servicing rights, and take a lot of risk out of the system,” Sogorka said
But he does not see blockchain being used for the actual tasks involved in servicing a loan. Servicers would still use a database-driven system to perform the various functions required.
Rather, the blockchain would keep a record of what is going on with a mortgage. “At different points in the lifecycle of the loan, you would write to the blockchain what’s going on, what’s the unpaid balance, what does this asset look like,” Sogorka said. “And that’s where I think in the future the model goes, where you’re not doing the work on the chain, but you’re updating the distributed ledger to let all the various parties know what is going on with that asset in real time.”
During the pandemic, investors had to wait as long as 45 to 60 days to get performance data. But using the blockchain that could be done in real time, he said.
Another instance could be the failure of a servicer and the need to transfer loan files to another entity. “In a blockchain enabled world, you can just change the permissions, and now somebody else could take over the servicing [and] be relatively seamless for the consumer,” he said. It would not be just limited to distressed servicing transfers, but can be applied to regular portfolio sales as well, taking out both cost and friction in the onboarding process.
Using blockchain technology will “reduce mortgage industry costs by up to 100 basis points from origination through securitization,” Figure CEO Mike Cagney claimed in a press release.
Figure and Homebridge Financial Services announced their merger on Aug 3. Homebridge currently does not retain servicing, so after that deal is done, it will also become a Sagent client, Sogorka said.
While the deal only calls for mortgage loans to be serviced on its platform, plans are to partner with Figure to build multi-asset servicing technology on Sagent.
Besides the Homebridge announcement, Figure just completed a $200 million Series D financing round that valued it at $3.2 billion. The agreement between Figure and Sagent is a contractual arrangement, no ownership stakes in either company is involved.
“Our pitch at Sagent has been, we want to modernize servicing at scale for our customers and the rest of the industry and we think this puts us a long way along that journey,” Sogorka said.