The Role of Technology in Mortgage Lending - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

The Role of Technology in Mortgage Lending

Number 836
February 2018

JEL classification: D14, D24, G21, G23

Authors: Andreas Fuster, Matthew C. Plosser, Philipp Schnabl, and James Vickery

Technology-based (“FinTech”) lenders increased their market share of U.S. mortgage lending from 2 percent to 8 percent 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 percent 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.

Available only in PDF

AUTHOR DISCLOSURE STATEMENT(S)

Andreas Fuster
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Matthew Plosser
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Philipp Schnabl
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

James Vickery
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.