Discussion Paper Details

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Title: The Role of Technology in Mortgage Lending

Author(s): Andreas Fuster, Matthew Plosser, Philipp Schnabl and James Vickery

Publication Date: May 2018

Keyword(s): Financial Intermediation, Fintech and Mortgages

Programme Area(s): Financial Economics

Abstract: Technology-based (``FinTech'') lenders increased their market share of U.S. mortgage lending from 2% to 8% 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% 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.

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Bibliographic Reference

Fuster, A, Plosser, M, Schnabl, P and Vickery, J. 2018. 'The Role of Technology in Mortgage Lending'. London, Centre for Economic Policy Research.