Blockchain technology and smart contracts are helping to expand the residential mortgage market beyond the grip of big banks and governments.
Decentralized mortgage lender Bacon Protocol has minted its first seven mortgages as nonfungible tokens, or NFTs, offering investors and borrowers new options for accessing the residential mortgage market.
The interest rate for each NFT mortgage ranges from 1.5% to 3.1% on properties in four U.S. states, the company disclosed Wednesday. That’s the interest rate borrowers pay after minting their mortgage through Bacon Protocol. By comparison, the average mortgage rate in the United States ranged from 2.27% to 2.98% for the week ending Nov. 10, according to Freddie Mac. The 30-year fixed-rate mortgage peaked at 3.14% on Oct. 28.
Mortgage rates in the United States have ticked up recently but remain well below the historic average. Source: Freddie Mac
Bacon’s decentralized mortgage platform, which launched in September, gives homeowners the ability to exchange a lien on their property for an NFT that represents a portion of its value. In May of this year, blockchain startup Propy became the first company to launch a real estate NFT, offering a tangible use case for smart contracts in the residential housing market. Whereas Propy auctioned a physical apartment as an NFT, Bacon Protocol is minting mortgages that finance residential properties.
Bacon Protocol NFTs are based on smart loans that are developed by platform originator LoanSnap, which uses artificial intelligence to determine mortgage eligibility. “The NFTs work by wrapping the lien on the home, while the protocol then lends against the NFT,” Bacon Protocol explained. Once a mortgage NFT is minted, it’s sent to the homeowner who then makes payments directly to Bacon Protocol.
More than a decade removed from the 2008 financial crisis, which was punctuated by the subprime mortgage meltdown, the residential mortgage market appears ripe for disruption. In addition to giving homeowners the ability to exchange a lien on their property for an NFT at lower interest rates, Bacon Protocol intends to make investments in the market easier through its bHome token, which is backed by USD Coin, liens and loans on U.S. properties.
Bacon Protocol co-founder Karl Jacob said “the mortgage industry is not meant to be replaced, but built upon with new technology,” adding that “NFTs and smart contracts fit perfectly into the lending world as they are similar to many legal arrangements in real estate, with upgraded technology and features.”