Mortgage on blockchain in Russia

Project participants

The initiator of the digital mortgage is the Russian government. The decree on conducting an experiment to test the method of interaction between depositories and Rosreestr was published in September 2021. The implementation of the launch is entrusted to the Bank of Russia. The project also involves:

• Rosreestr.
• Mincifry.
• DOM.RF.
• FinTech.

The operator of the Distributed Registry Systems platform has already started working on expanding the available pool of functions. The company sees great prospects for the development of Russia’s digital space using distributed registers. DOM.RF notes that the introduction of technology in the financial sector will not only simplify the receipt of electronic mortgages, but will also reduce mortgage rates by reducing the operating costs of lenders.

During the experiment, the authorities intend to evaluate the efficiency of distributed data storage and transmission on the basis of the Russian Masterchain network. The project’s objectives also include the formation of conditions for the launch of the state information system “Goschain”.

Principle of operation

Banks began testing the updated platform in the spring of 2021. Anonymized user data was used to register electronic mortgages. Since December, the project has been in active mode: the system processes real documents.

Financial information is exchanged in the Masterchain network using a simplified algorithm:

1. Participants register through the system operator.
2. Approved organizations install software on their side.
3. The bank sends the loan agreement to Rosreestr.
4. The state body fixes the document with a digital signature and transfers it to the network.

Any changes to the contract are recorded in the system and confirmed by the parties to the process.

Benefits of blockchain-based mortgages

Traditionally, obtaining a housing loan is associated with the execution of a large number of documents and the participation of intermediaries (lawyer, notary, financial expert, BCI). Such transactions are non-transparent, require lengthy processing and high associated costs. In a distributed registry, all information is stored digitally and its reliability is ensured by a protocol. Other pluses of the technology:

• Creating a digital identifier for real estate assets allows tracking of their status and increases market liquidity.
• Smart contract fixes the terms of the agreement and controls their fulfillment. This eliminates intermediaries from the process.
• The network ensures data security. Information is stored on geographically distributed nodes. The risk of its loss is minimized.
• The technology increases the transparency of transactions many times over. It is impossible to change or delete data in the blockchain.

Development prospects

According to Oleg Komlik, Deputy Director of DOM.RF, data exchange between banks and Rosreestr on the basis of blockchain will reduce the time of transaction processing from today’s 7-9 days to a few hours or minutes.

According to Rosreestr, in 2021 in Russia the share of mortgage transactions using electronic services is 50%. Given the current trend, the full transition to digitalization will take place by the end of 2022.

Tatiana Zharkova, a representative of the Distributed Registry System operator, notes the convenience of digital mortgages for banks and borrowers. For the former, the technology facilitates data processing. The latter no longer need to independently collect and submit a package of documents for registration. All project participants are convinced: blockchain will make mortgages more affordable for Russians and will have a positive impact on the development of the cryptocurrency industry in general.

Summary

In 2020, during the period of strict anti-viral measures in Russia, the Central Bank allowed financial organizations to process mortgages remotely. Experts predicted a downturn in the credit housing market, but it grew to a record 4.3 trillion In 2021, the trend continued. The volume of mortgage loans reached new highs – 5.5 trillion. In December, a new project under the auspices of the Central Bank – digital mortgage – was launched. By the end of 2022, the government plans to move the entire sector to blockchain. This will reduce the cost of processing and servicing loans, which will lead to lower interest rates. Mortgages will become more affordable and faster.

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