SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteWill Blockchain Technology Prevent Mortgage Closing Fraud?

February 21, 2018
It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

Never heard of “blockchain” technology?  Well then you better start Googling it, because like the fax machine, personal computer and the Internet, blockchain data authentication, storage and sharing technology promises to change the way financial transactions occur in a transformational way. Along the way the way banks make loans, and the way we access public data (including property title information) could be radically changed, many say for the better.

A blockchain facilitates secure online transactions. It refers to a decentralized and distributed digital ledger that records transactions across many computers in such a way that the registered transactions cannot be altered retroactively.  Data can be distributed but not copied, can be shared but not stolen, can be personal but because any confidential data will be registered in a unique code to you.  This code or “keys” as referred to in blockchain lingo, consists of a long, randomly-generated string of numbers and characters that one day you may carry with you in an Orwellian manner so that you can unlock all of your own personal information in this database structure. (“Hi there, I am number 679K0iYZX56!34721#, what is your code?”)

Information held on a blockchain exists as a shared and continually reconciled database over a global network of computers that makes it nearly impossible to be corrupted and hacked.. Data is not stored in any single location, meaning the records it keeps are truly public and easily verifiable. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

There has been some talk about how blockchain technology could prevent financial fraud, reducing that risk for lenders, and also to manage public property records.  This latter idea could radically alter the title industry by eliminating the need for a “middle man” to verify authenticated property information and thereby making that information available to everyone using a simple blockchain data search tool.

In May 2016, Forbes Magazine published an article titled “How Blockchain Technology Could Change the World.”    Author  Bernard Marr wrote “We have become used to sharing information through a decentralized online platform (the internet). But when it comes to transferring value – for example money – we are usually forced to fall back on old fashioned, centralized financial establishments such as banks.  Even online payment methods [such as} Paypal… generally require integration with a bank account or credit card to be useful.  Blockchain technology [could] eliminate this [need] by filling three important roles – recording transactions, establishing identity and establishing contracts – traditionally carried out by the financial services sector.”

A September 2015 World Economic Forum report predicted that by 2025 10% of GDP will be stored on blockchain technology.   That is twenty billion ($20B) reasons to pay attention.

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