Blockchain as a Replacement to The MERS (Mortgage Electronic Registration System)
The case for crypto to replace the MERS (mortgage electronic registration system)
Prior to the year 2001, when consumers went to get home loans from their bank, the instrument they were signing, the promissory note, would stay in that local neighborhood bank.
After 2001, everything changed, the loans went into "securitization markets".
Securitization is just a fancy word that means the loans went to the stock market.
The reason for this was very simple, it offered an opportunity to leverage these loans into even bigger loans and make more money globally.
As time went on a bubble in the US housing market ensued with prices steadily increasing. Equity grew. Borrowers continued to buy more properties and take more cash out.
These loans, in turn, were then packaged and sold off to secondary markets, eventually being sold off to completely different countries. It all seemed great at first. Almost too good to be true. That is, until the bubble burst in 2008-2009. The USA and the rest of the world became ensnared in a Global crisis and financial meltdown.
How could have this have happened?
The obvious answer was greed.
Pressing the issue further, and upon deeper inspection, there was a general negligence and lack of accountability which created a perfect storm for such a calamity to occur in the first place.
What Wall Street was doing was equivalent to taking a wad of $1 bills and wrapping it up with a single 100 dollar bill and then passing it off to other countries as if the whole stack was nothing but 100 dollar bills.
Wall Street was packaging sub-prime loans with A paper loans and selling them off to Hedge Funds and secondary markets who did not know any better.
There is actually an Oscar winng film called, "The Big Short", starring big Hollywood actors such as Steve Carell, Christian Bale, Ryan Gosling, Brad Pitt, and Margot Robbie. It tells the story more in depth than I.
I highly recommend it.
So what would Cryptography do to help?
It's all about ACCOUNTABILITY.
After 2001, upon the advent of loan securitization, a very complex system called MERS (MORTGAGE ELECTRONIC REGISTRY SYSTEM) was devised to keep track of who is servicing the loan, who owns the loan, who is insuring the loan, etc.
As banks began to go out of business during the bust era different institutions had to take over for others, whether it was the government stepping on or other banks.
Things got messy and the legendary "Robo-signing" fiasco ensued where many millions of Americans lost their homes unjustly because of issues with who was in charge of their home loan.
If there was a cryptographic system in place with home loans and other forms of debt in this country on the Blockchain, it would do wonders in keeping things organized and accountable.
Never again would there be a question of how much is owed and to whom is the money owed. The same would go for the investors who are buying these loans and collecting money off interest.
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