Fintech and Minority Welfare: Evidence from the Mortgage Market

Abstract

I examine the impact of fintech lenders on the minority credit access and availability and minority borrower quality in terms of credit risk. Fintech expansion in the mortgage market is associated with greater minority credit access amongst both home purchase and refinancing sectors, but only in less economically disadvantaged communities. Fintech lenders significantly reduce costs for refinancing mortgages originated to minority borrowers in terms of both interest rates and non-interest costs, by 100% and 49% respectively. However, these price reductions are significant only for Asian and Hispanic borrowers, with no corresponding benefit observed for African American borrowers. These pricing differences do not appear to be driven by fintech algorithms using group membership as a risk proxy. Instead, they seem to stem from variations in shopping propensities among different minority groups, which may be influenced by fintech lenders creating a more conducive environment for shopping between lenders.

Keywords: fintech, minorities, discrimination, mortgages

JEL Classification: G21, J15