The objective is for all parties from the mortgage originator to the mortgage backed security (MBS) investor, to be able to access the originating mortgage documents and to verify they haven’t been changed.
In the case of false representations and warranties, it should change who bears the loss in default. “If a borrower lies on his application that it’s primary residence but never lives there, then the loan should be bought out by whichever institution originated the loan or owned it and put it into a securitization pool,” said Patrick Tadie, SVP for structured finance at Wilmington.
The company is patenting the solution and seeking partners, including on the technology side.
Wilmington Trust became a subsidiary of M&T Bank following a sale as a result of loan losses during the last recession. The former President was given a six year sentence by a Delaware court judge with ongoing appeals. A key issue related to not classifying loans as delinquent and then seeking to raise additional investment.
Blockchain is a natural fit for asset backed securities (ABS) because it can provide greater transparency. Vanguard recently announced it was piloting an asset backed securities solution developed by Symbiont.
When it comes to mortgage backed securities, Figure Technologies issued a $149 million security four months back.
WSFS Institutional Services, a U.S.-based WSFS Bank unit, is also trialing blockchain for trustee reporting for ABS.
But China is at the forefront with Zheshang Bank using blockchain for ABS issuance more than two years ago and, more recently, for asset backed commercial paper. A report by Fitch found at least eight blockchain ABS transactions in China seven months ago, including a $1.3 billion MBS from Bank of Communications.