Homeland Peer to peer platform works by embedding mortgage lending business logic in to smart contracts. Blockchain technology used in Homelend mortgage platform creates new possibilities for pear to pear lending. This allows individuals to borrow money from their peers in a trusted, transparent, and secure way. Basically the borrowers and lenders are not linked by a financial intermediary but by the smart contracts. Homelend plans to adapt three types of peer to peer lending methods such as crowdfunding, pooling and auction. It is now considered the next step in distributed ledger technology (DLT) along with the support Smart Contracts. In each method loans are split in to fractions with different approaches.
Apart from the distributed ledger technology (DLT) the other important feature is smart contract. They are computer programs that perform a specific action when the pre-defined conditions are met. Simply it is automatically executed when obligations are met. Smart contact is not native to blockchain technology or DLT The flow of financial resources are controlled by the smart contracts which does not include any involvement of middle-men or financial intermediaries. This method makes the process of mortgaging more easy and efficient and helps reduce the time consumed and secures the system.
In crowdfunding the lenders will find investment opportunities in form of slices. In here pre-approved mortgage loan of the borrower is broken down to slices of equal amount and investors can fund or “buy” one or more slices from the borrower. What is attractive about CrowdFunding is its simplicity. However it’s not easy to find enough investors to fund the loan. The loan cannot be closed till it is fully funded.
Pooling provide a solution to the problem of finding enough investors at the time in CrowdFunding. But this is more complicated from the technological view. In pooling lenders will be able to invest trough smart contracts before the specific mortgage loan to be financed has been pre-approved. Which simply means the smart contract allows the lenders to buy slices before they are properly created which gives lenders the ability to invest in future and existing slices managed by smart contract with a uniform level of risk. In here the slices will be allocated to the investors on a first come first served basis / to the earliest investor, for the number of slices they have subscribed. Though it makes financing simple and efficient it is complicated when compared to the CrowdFunding.
In auctioning unlike the pooling, no financial buffering will be involved. In here the lender will be able to offer better conditions than those pre-approved from the platform. It here the lenders can bid on a specific slice by the above mentioned way. There are two ways that can be done. They are either by offering discount points to the borrower or by charging lower interest rates than the pre-approved. And sometimes the whole mortgage loan might have the same interest rate. Once all slices are sold the loan closing will happen in the usual way.
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Name: Channa Jayawickrama.
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