Bank Technology Adoption and Loan Production in the U.S Mortgage Market

87 Pages Posted: 25 May 2023 Last revised: 6 Feb 2024

See all articles by Sheila Jiang

Sheila Jiang

University of Florida - Department of Finance, Insurance and Real Estate

José Ignacio Cuesta

Stanford University - Department of Economics

Adam Jørring

Boston College - Carroll School of Management

Douglas Xu

University of Florida - Warrington College of Business Administration

Date Written: May 22, 2023

Abstract

Information technology plays a key role in the consumer credit market, by shaping the way lenders screen and underwrite borrowers. We study how the adoption of information technology by lenders affects approval decisions, pricing, and repayment in the U.S mortgage market. We assemble a novel loan-level dataset that covers the trajectory of mortgages from application to repayment and combine it with detailed information about IT investment by lenders. We empirically identify that higher IT investment leads lenders to increase approval rates for loan applications, introduce greater granularity in their pricing, and create loan portfolios with better ex-post performance. A simple model of screening technology investment, loan underwriting and pricing is developed to explain our empirical findings.

Keywords: Mortgage market, bank screening, loan making, technology adoption, financial inclusion

JEL Classification: G21, D22, G20, G51

Suggested Citation

Jiang, Sheila and Cuesta, José Ignacio and Jørring, Adam and Xu, Douglas, Bank Technology Adoption and Loan Production in the U.S Mortgage Market (May 22, 2023). Available at SSRN: https://ssrn.com/abstract=4455105 or http://dx.doi.org/10.2139/ssrn.4455105

Sheila Jiang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

José Ignacio Cuesta

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

HOME PAGE: http://https://sites.google.com/site/ignaciocuesta/

Adam Jørring

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Douglas Xu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

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