The Role of Technology in Mortgage Lending

75 Pages Posted: 21 Feb 2018

See all articles by Andreas Fuster

Andreas Fuster

Swiss National Bank - Financial Stability

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Philipp Schnabl

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

James I. Vickery

Federal Reserve Bank of New York

Multiple version iconThere are 3 versions of this paper

Date Written: February , 2018

Abstract

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.

Keywords: mortgage, technology, prepayments, nonbanks

JEL Classification: D14, D24, G21, G23

Suggested Citation

Fuster, Andreas and Plosser, Matthew C. and Schnabl, Philipp and Vickery, James Ian, The Role of Technology in Mortgage Lending (February , 2018). FRB of New York Staff Report No. 836. Available at SSRN: https://ssrn.com/abstract=3127175 or http://dx.doi.org/10.2139/ssrn.3127175

Andreas Fuster (Contact Author)

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Philipp Schnabl

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/pschnabl/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

James Ian Vickery

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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