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The Role of Technology in Mortgage Lending

Journal: Review of Financial Studies

Date: 20190501

Author: Fuster, Andreas; Plosser, Matthew; Schnabl, Philipp; Vickery, James

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.

Link: Google Scholar

Background and Context

Study Period

The research examines FinTech mortgage lending from 2010 to 2016, during which FinTech market share grew from 2% to 8% of U.S. mortgage originations.

Research Focus

The study analyzes how technology-based lenders are transforming mortgage origination through online applications and automated underwriting processes.

Methodology

Using loan-level data on mortgage applications and originations, researchers compared processing times, default rates, and market responses between FinTech and traditional lenders.

Growth in FinTech Mortgage Market Share (2010-2016)

  • FinTech lenders grew from a small niche to significant market presence
  • Total originations increased from $34bn in 2010 to $161bn in 2016
  • Demonstrates rapid consumer adoption of online mortgage platforms

Faster Processing Times with FinTech Lenders

  • FinTech lenders process mortgages approximately 20% faster than traditional lenders
  • Average processing time reduction of 10.5 days
  • Efficiency gains achieved through automation and centralized operations

Lower Default Rates for FinTech FHA Loans

  • FinTech FHA loans show 35% lower default rates than traditional lenders
  • Demonstrates effective borrower screening despite automated processes
  • Contradicts concerns about potential lax screening in automated systems

FinTech Response to Demand Shocks

  • FinTech lenders show greater capacity to handle demand surges
  • Processing delays are 44% shorter during high-volume periods
  • Demonstrates superior scalability of automated systems

Impact of FinTech on Refinancing Rates

  • Areas with high FinTech presence show 10% higher refinancing rates
  • Increased refinancing activity particularly evident when financially beneficial
  • Suggests FinTech reduces barriers to refinancing

Contribution and Implications

  • FinTech innovation improves mortgage market efficiency through faster processing and better scalability
  • Technology-based lending enhances market responsiveness to interest rate changes through easier refinancing
  • Automated processes can maintain or improve loan quality while increasing processing speed

Data Sources

  • Market share growth chart based on data from Table 2 and main text
  • Processing times comparison based on Table 2 statistics
  • Default rates visualization based on Table 4 results
  • Demand response elasticity based on Table 6 findings
  • Refinancing impact based on Table 9 statistics