An attempt to apply blockchain technology for securitization

A group of major financial institutions wants to use blockchain technology to resurrect a business that nearly destroyed the global banking system in 2017: converting mortgages into securities.

Credit Suisse Group AG, U.S. Bancorp, Wells Fargo & Co. and Western Asset Management Co. said on Thursday that it had tested distributed ledger technology as a way to make it easier to track the securitization of mortgages.

Before the 2008 crisis, bundling home loans and selling them to investors was a very lucrative business for banks. The crisis was caused by the inability of many borrowers to repay their debt, which undermined the securitization market and caused losses of trillions of dollars. After this, the market declined sharply. According to the Securities Industry and Financial Markets Association, there were $823 billion in such deals in 2017, up from $2.3 trillion in 2007. The group will start its business with mortgages that are not backed by the U.S. government, but plans to back them with some assets.

“Securities are a complex process, involving many parties, duplicate documents and data in different formats,” David Rutter, chief executive, said Thursday. director of the R3 blocking center, which organizes the consortium. “The next step will be to provide a commercially viable product.”

“Distributed ledger technology will radically enhance data security, which is incredibly important not only in financial but also other industries,” said Penny Morgan, a top manager at West Asset Management, in a statement.

According to https://www.bloomberg.com