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The Role of Technology in Mortgage Lending

Author

Listed:
  • Fuster, Andreas
  • Plosser, Matthew
  • Schnabl, Philipp
  • Vickery, James

Abstract

Technology-based (``FinTech'') lenders increased their market share of U.S. mortgage lending from 2% to 8% from 2010 to 2016. Using market-wide, loan-level data on U.S. mortgage applications and originations, we show that FinTech lenders process mortgage applications about 20% faster than other lenders, even when controlling for detailed loan, borrower, and geographic observables. Faster processing does not come at the cost of higher defaults. FinTech lenders adjust supply more elastically than other lenders in response to exogenous mortgage demand shocks, thereby alleviating capacity constraints associated with traditional mortgage lending. In areas with more FinTech lending, borrowers refinance more, especially when it is in their interest to do so. We find no evidence that FinTech lenders target marginal borrowers. Our results suggest that technological innovation has improved the efficiency of financial intermediation in the U.S. mortgage market.

Suggested Citation

  • Fuster, Andreas & Plosser, Matthew & Schnabl, Philipp & Vickery, James, 2018. "The Role of Technology in Mortgage Lending," CEPR Discussion Papers 12961, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12961
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    References listed on IDEAS

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    Cited by:

    1. repec:bis:bisqtr:1809e is not listed on IDEAS
    2. repec:eee:jfinec:v:130:y:2018:i:3:p:453-483 is not listed on IDEAS
    3. Jon Frost & Leonardo Gambacorta & Yi Huang & Hyun Song Shin & Pablo Zbinden, 2019. "BigTech and the changing structure of financial intermediation," BIS Working Papers 779, Bank for International Settlements.
    4. Rustom M. Irani & Rajkamal Iyer & Ralf R. Meisenzahl & José-Luis Peydró, 2018. "The rise of shadow banking: evidence from capital regulation," Economics Working Papers 1652, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Eichenbaum, Martin & Rebelo, Sérgio & Wong, Arlene, 2018. "State Dependent Effects of Monetary Policy: the Refinancing Channel," CEPR Discussion Papers 13223, C.E.P.R. Discussion Papers.
    6. repec:oup:rfinst:v:32:y:2019:i:5:p:1647-1661. is not listed on IDEAS
    7. Frame, W. Scott & Wall, Larry D. & White, Lawrence J., 2018. "Technological Change and Financial Innovation in Banking: Some Implications for Fintech," FRB Atlanta Working Paper 2018-11, Federal Reserve Bank of Atlanta.
    8. Buchak, Greg & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2018. "Fintech, regulatory arbitrage, and the rise of shadow banks," Journal of Financial Economics, Elsevier, vol. 130(3), pages 453-483.
    9. Fuster, Andreas & Plosser, Matthew & Vickery, James, 2018. "Does CFPB oversight crimp credit?," Staff Reports 857, Federal Reserve Bank of New York.
    10. Foote, Christopher L. & Loewenstein, Lara & Willen, Paul S., 2018. "Technological Innovation in Mortgage Underwriting and the Growth in Credit: 1985-2015," Working Papers (Old Series) 1816, Federal Reserve Bank of Cleveland.
    11. repec:bin:bpeajo:v:49:y:2019:i:2018-01:p:347-428 is not listed on IDEAS
    12. Wang, J. Christina, 2018. "Technology, the nature of information, and fintech marketplace lending," Current Policy Perspectives 18-3, Federal Reserve Bank of Boston.
    13. You Suk Kim & Steven M. Laufer & Karen Pence & Richard Stanton & Nancy Wallace, 2018. "Liquidity Crises in the Mortgage Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(1 (Spring), pages 347-428.
    14. Tobias Berg & Valentin Burg & Ana Gombović & Manju Puri, 2018. "On the Rise of FinTechs – Credit Scoring using Digital Footprints," NBER Working Papers 24551, National Bureau of Economic Research, Inc.
    15. Martin Brown & Jan Schmitz & Christian Zehnder, 2018. "Communication and Hidden Action: Evidence from a Person-to-Person Lending Experiment," Working Papers on Finance 1819, University of St. Gallen, School of Finance, revised Nov 2018.

    More about this item

    Keywords

    Financial Intermediation; Fintech; Mortgages;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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