For most Americans, buying a house is the biggest decision they’ll make in their lives. Think about it, when you buy a house, you’re not planning on staying for a year or two, or even five. No, when you buy a house, you’ll likely sign on the dotted line for a 15-year, or 30-year, mortgage and plan to live in that house for the rest of your life.
That’s why the news that hit the tape this morning was so groundbreaking.
The first seven NFT mortgages to ever hit the blockchain have been minted and a new wave of mortgage lending may be on the horizon. Here’s what’s happening:
Bacon Protocol Mints the First Ever NFT Mortgages
The first seven mortgages to hit the blockchain were minted by Bacon Protocol, a decentralized mortgage lender startup that sees the blockchain as a secure way to issue and track mortgages. According to an announcement, the company has minted its first seven mortgages as non-fungible tokens, which offer both investors and borrowers new options for accessing the residential mortgage market.
So, how do NFT mortgages work?
While it took some time for Bacon to pin the process down, its service was officially launched in September. Through its service homeowners have the ability to exchange a lien on their property for an NFT that represents a portion of its value.
These NFTs are based on smart loans that are developed by LoanSnap. The process uses artificial intelligence to determine mortgage eligibility. Once the borrower is deemed eligible for a mortgage, and the investor decides to dive in, a smart contract is created, encompassing a lien on the property. Should the borrower make all payments as agreed, they receive the lien, a document that’s inaccessible unless the borrower pays the loan as agreed to maturity or defaults on the terms of the agreement.
Details of the Mortgages
First and foremost, Bacon is making the payment process very simple, with all payments for mortgages minted through its services made payable to Bacon itself. Moreover, the interest rates on these mortgages are pretty strong.
According to the company’s disclosure, interest rates on the first mortgages on the platform range from 1.5% to 3.1%. By comparison, the average rate in the United States currently ranges from 2.27% to 2.98% with 30-year mortgages recently peaking out at 3.14%.
Could This Technology Reshape the Mortgage Industry?
Cryptocurrency, and the blockchain, the building blocks that led to NFTs, were ultimately designed to provide decentralized structure to the financial system. So, it’s not surprising that as these systems evolved into NFTs as we know them today, they’re shaking up one of the biggest pieces of the foundation of the financial system, the mortgage industry. But could this technology reshape the industry?
In my opinion, the answer is a resounding YES!
The simple fact is that there are big problems with contracts as we see them today. Terms that can mean different things are often strewn through contracts and a general understanding is hard to come by for many. That’s why there’s contract lawyers out there!
NFTs, or unique smart contracts that live on the blockchain could provide the solution to these problems.
Think about it… A smart contract has no feelings, no greed, no fear, and no emotion. All a smart contract does is create a ledger of what’s happening and take action as the rules to the contract stipulate. There’s no misinterpretation of what’s supposed to be happening.
For example, in the case of a mortgage contract, the buyer agrees to pay the lender $1,800 a month for 15 years at a predetermined interest rate. If the buyer fails to pay as agreed, the smart contract automatically gives the lender the lien and action is taken. If the buyer pays as agreed, they receive the lien at the maturity of the agreement, free and clear, ready to move on with their lives. The process is as clean as it gets.
And we’re not just talking about mortgages here.
Recently, NFTfi launched, bringing secured lending to the NFT industry. The service connects lenders with borrowers that want to use their NFTs as collateral. The borrower decides how much money is needed and which NFT they’ll put up to secure the loan. From there, multiple lenders assess the value of the token and the loan itself, and provide offers.
The user then chooses the offer he’s most comfortable with and the smart contract is created, wrapping in the NFT. Should the borrower pay as agreed, the NFT is safely returned and the borrower is ready to move on. If the borrower fails to pay, the lender automatically receives ownership of the digital collectible to sell, trade, or do with as they please.
The Bottom Line
The bottom line here is simple. NFTs have the potential to shake up many areas of the financial system as we know it today. With the launch of secured loans and mortgage lending in the space, the sky’s the limit.
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