The Effect of Automated Underwriting on the Profitability of Mortgage Securitization

97-19

27 Pages Posted: 22 Jul 1997

See all articles by S. Wayne Passmore

S. Wayne Passmore

Board of Governors of the Federal Reserve System

Roger Sparks

Mills College

Date Written: April 8, 1997

Abstract

Over the past two years, many mortgage market analysts have praised automated underwriting as a technological innovation that will lower the costs of processing mortgage applications. However, automated underwriting is unlikely to decrease processing costs uniformly for all mortgage applications. Instead, it makes identifying and processing low-risk mortgage borrowers less costly, but may not significantly lower the costs of identifying and processing relatively high-risk applicants. Our results suggest that after the one-time cost reduction produced by automated underwriting, the resulting mortgage market equilibrium is characterized by lower mortgage rates and lower profits for the mortgage securitizer.

JEL Classification: G21

Suggested Citation

Passmore, Stuart Wayne and Sparks, Roger W., The Effect of Automated Underwriting on the Profitability of Mortgage Securitization (April 8, 1997). 97-19, Available at SSRN: https://ssrn.com/abstract=36643 or http://dx.doi.org/10.2139/ssrn.36643

Stuart Wayne Passmore (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Roger W. Sparks

Mills College ( email )

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