The latest update of Sun West Mortgage’s Morgan proprietary artificial intelligence system allows for the use of open ledger technology, more commonly known as blockchain.
Morgan will now convert a pre-approved property-specific loan to a property agnostic tradable non-fungible token.
The NFT is backed by real dollars and guaranteed by Sun West. The lender said this approach empowers buyers and sellers in any income bracket with the ability to present and accept offers with certainty and without open-ended financing contingencies making it comparable to an all cash offer.
The mechanics behind a home sales transaction change. The homebuyer is now the seller of a NFT if the property owner agrees to accept the offer, Sun West CEO Pavan Agarwal explained.
In return, the NFT guarantees the seller will receive the proceeds of the loan.
“With the NFT it changes the dynamics of the trade especially now as we go into a buyers’ market,” said Agarwal. “It evens out the playing field for the sellers and the buyers, because there’ll be also greater transparency” in the transaction.
That includes buyers being able to see in the blockchain any other bidders for the property, while sellers can also track how many other property owners are working with that particular buyer, Agarwal said.
In broad terms, a NFT is a unique piece of digital data stored in a blockchain. It can be bought or sold and its ownership is also recorded on a blockchain. Sports collectables are one common use for NFTs.
Adoption of blockchain so far has been limited in mortgage, primarily with Figure Technologies in home equity lending. Figure has created a mortgage registry NFT to compete with MERS and it is also working with Sagent to bring this to servicing.
Starting with Morgan, “the whole transaction can be done completely online, it gets you to a point where transactions are just like buying a product on Amazon,” Agarwal said.
With the NFT the purchase contract becomes a smart contract, and the buyer’s earnest money deposit is kept on the blockchain in a secure crypto wallet unless otherwise directed by the seller. But like a traditional home sales contract, if the borrower elects not to go through with the transaction, and not honor the NFT trading hands, the earnest money deposit is sent to the seller.
Morgan is also used by Sun West’s brokers and correspondents, plus the company licenses the technology to depositories.
Borrowers need to access Morgan’s AI automated underwriting technology and will receive a “TRU Approval;” TRU stands for thoroughly reviewed and underwritten. At that point the token is generated.
Morgan reviews and resolves 99% of submissions within two hours, with over 30% within 30 minutes, Sun West said. Sun West has multiple patents on the Morgan technology and is still applying for additional ones.
With the TRU Approval, “once the NFT is given, that means that Sun West or any of the participating banks on our network are committed to wire that money,” Agarwal said.
The NFT also equalizes the standing of borrowers, he added.
“What we’re delivering is equality in service and speed to low income borrowers with 3% down and [on] the lower credit spectrum…the same speed and attention and care as a high income borrower with 20% down and an 800 credit score,” in what remains a very competitive housing market,” Agarwal said. Some of those low income borrowers in a multiple bid situation may have their offer overlooked when submissions are presented to the seller.
“But now with TRU Approval the 3% down is equal to 20% down or a cash buyer because of the guarantee,” Agarwal said. “I think getting the blockchain technology on top of it gives a whole new level of transparency and simplicity to the transaction where it truly becomes one click.”
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