Today is the 15th anniversary of the collapse of Lehman Brothers. The great financial crisis (GFC) revealed a defective supply chain, metrics unable to assess local risk and markets incapable of answering Ben Bernanke’s defining question – “what’s this stuff worth?”
The requirements of a Digital Housing Platform were well understood long before the crisis. The components needed to move housing past a costly, error prone, disconnected system include:
- Authentication: Identity is the key control point in any digital interaction. The capability to “identity proof” the participants in a complex, multi-party transaction is fundamental to establishing trust, reducing fraud and removing friction between “relying parties.” The capability to authenticate, issue and revoke digital credentials is central to controlling access, verifying rights and accepting content from supply chain partners.
- Authorization: A digital loan file of record accessed by a broad range of trusted identities from lenders to guarantors to investors requires a permission structure. What functions are individuals and organizations allowed to perform including viewing, editing, printing, exporting and approving? The capability to enforce these rights can eliminate errors and rework. The result should be collapsing costs and cycle times, improving quality, reducing repurchase risk and certifying that a loan, and its related assets are “Fit 4 Sale.”
- Non-Repudiation: E-sign became federal law in 2000 but digital signatures are only a subset of the integrity component. Investors require assurance that a file, note or instrument reflects the verifiable intentions of the committed parties. Sensitive content must be protected in motion over networks and at rest within repositories. Technologies like encryption help deliver certainty that content has not been tampered with.
- Validation: Mortgage is a manufacturing process with end products dependent on accurate information. Data is imported from multiple sources including credit agencies, public records aggregators, appraisers, inspectors, title and insurance firms and Realtors. How do we know that the data is correct, can the source be verified, does it meet quality standards and can compliance with pricing guidelines be guaranteed?
- Federation: Integrating the fragmented, localized and diverse housing ecosystem is the major challenge for any network delivering content from trusted sources. Standard agreements define shared responsibilities and what happens when mistakes happen. These policy considerations, enforced by technology and legal conventions, are required for interoperability among supply chains and between competing “Super Apps.”
- Registration: A golden record of who owns the asset is a prerequisite for any commercial trading system. Improving the ability of MERS to verify and transfer ownership required capital, time and technology. Extending the registration component to county recording offices was another platform foundation.
- Transactions: Platforms are “plug and play” once federated policies are widely implemented. Matching and clearing trades in open exchanges for multiple asset classes is a core ICE capability. The Ellie Mae component provided a critical mass of connections to begin the process of reinventing the property transaction.
- Compensation: Payments reveal the end points of the ad-hoc networks that characterize real estate. A servicing system that touches the consumer every month can be extended to all the participants in the original transaction. As every consumer facing commercial platform will attest — payments are the prize.
- Information: Listings are on platform and new metrics will assess the risk, value and volatility of submarkets.
- Integration: The sector reimagines portals, anchors federations, converges markets and makes money.
The DC3 platform launched in 1937 featured five components that had to be invented to make commercial air travel possible. Apple’s iPhone integrated 12 new components in 2007, and its reach has been extended to multiple vertical markets including banking. Housing finally has a Digital Platform that can attack several hard problems. What’s next?
Stuart McFarland is the former EVP Operations and CFO at Fannie Mae, EVP General Manager at GE Capital Mortgage Services, and CEO at GE Capital Asset Management.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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