Opinion: From Lehman to a digital housing platform | ET REALITY


Today marks the 15th anniversary of the collapse of the Lehman brothers. The Great Financial Crisis (GFC) revealed a flawed supply chain, metrics unable to assess local risk, and markets unable to answer Ben Bernanke’s defining question: “how much is this worth?”

The requirements of a digital housing platform were well known long before the crisis. The components necessary to overcome a disconnected, costly and error-prone system include:

  • Authentication: Identity is the key control point in any digital interaction. The ability to “prove the identity” of participants in a complex multi-party transaction is critical to establishing trust, reducing fraud, and eliminating friction between “relying parties.” The ability to authenticate, issue, and revoke digital credentials is critical to controlling access, verifying rights, and accepting content from supply chain partners.
  • Authorization: A digital loan record file accessed by a wide range of trusted identities, from lenders to guarantors to investors, requires a permissions structure. What functions can people and organizations perform, including viewing, editing, printing, exporting, and approving? The ability to enforce these rights can eliminate errors and rework. The result should be to reduce costs and cycle times, improve quality, reduce buyback risk, and certify that a loan and its related assets are “Fit 4 Sale.”
  • I do not repudiate: The electronic signature became federal law in 2000, but digital signatures are only a subset of the integrity component. Investors require assurances that a file, note or instrument reflects the verifiable intentions of the committed parties. Sensitive content must be protected in motion across networks and at rest within repositories. Technologies such as encryption help provide certainty that content has not been tampered with.
  • Validation: Mortgage is a manufacturing process whose final products depend on accurate information. Data is imported from multiple sources, including credit agencies, public records aggregators, appraisers, inspectors, title and insurance companies, and real estate agents. How do we know the data is correct, the source can be verified, it meets quality standards, and compliance with pricing guidelines can be guaranteed?
  • Federation: Integrating the fragmented, localized and diverse real estate ecosystem is the main challenge for any network that offers content from trusted sources. Standard agreements define shared responsibilities and what happens when errors occur. These policy considerations, enforced by technology and legal conventions, are necessary for interoperability across supply chains and between competing “super apps.”
  • Record: A golden record of who owns the asset is a prerequisite for any trading trading system. Improve the capacity of MERS Verifying and transferring ownership requires capital, time and technology. Expanding the registration component to county recorder offices was another foundation of the platform.
  • Proceedings: Platforms are “plug and play” once federated policies are widely implemented. Matching and clearing trades on open exchanges for multiple asset classes is a core capability of ICE. The Ellie Mae component provided a critical mass of connections to begin the process of reinventing the real estate transaction.
  • Compensation: Payments reveal the endpoints of the ad-hoc networks that characterize the real estate sector. A service system that reaches the consumer every month can be extended to all participants in the original transaction. As every consumer faced with a trading platform will attest: payments are the prize.
  • Information: Listings are on the 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.

He DC3 platform Launched in 1937, it included 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 expanded to multiple vertical markets, including banking. Housing finally has a Digital Platform that can attack several difficult problems. Whats Next?

Stuart McFarland is the former executive vice president of operations and chief financial officer of Fannie Mae, executive vice president of GE Capital Mortgage Services, and CEO of GE Capital Asset Management.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Stuart McFarland ininfo@placesplatform.net

To contact the editor responsible for this story:
Tracey Velt intracey@hwmedia.com

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