The Role of Technology in Mortgage Lending

TLDR

FinTech lenders increased their share of U.S. mortgage lending from 2% to 8% between 2010 and 2016. The study investigates whether FinTech lenders process mortgage applications faster than other lenders. The authors analyze loan‑level data on mortgage applications and originations, controlling for observable characteristics, to compare processing speeds. FinTech lenders process applications 20% faster without higher defaults, adjust supply more elastically to demand shocks, encourage more refinancing when advantageous, and show no evidence of targeting low‑access borrowers.

Abstract

Technology-based ("FinTech") lenders increased their market share of U.S. mortgage lending from 2% to 8% from 2010 to 2016. Using loan-level data on mortgage applications and originations, we show that FinTech lenders process mortgage applications 20% faster than other lenders, controlling for observable characteristics. Faster processing does not come at the cost of higher defaults. FinTech lenders adjust supply more elastically than do other lenders in response to exogenous mortgage demand shocks. In areas with more FinTech lending, borrowers refinance more, especially when it is in their interest. We find no evidence that FinTech lenders target borrowers with low access to finance. Received June 1, 2017; editorial decision November 5, 2018 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.