Fintech Has Improved Mortgage Lending

New York Federal Reserve: Fintech Has Improved the Mortgage Lending Market

The New York Federal Reserve has published a staff report pertaining to “The Role of Technology in Mortgage Lending.”  It was authored by Andreas Fuster, Matthew Plosser, Philipp Schnabl, and James Vickery.  According to their research, Fintech is improving the mortgage lending market by making it more efficient and faster.

The mortgage lending industry has been undergoing dramatic change.

This segment is still relatively small.  Nevertheless, this segment of online lending has grown annually by 30%.  It has risen from $34 billion of total originations in 2010 or 2% of the market, to $161 billion in 2016 or 8% of the market.

The Fed research finds that Fintech lenders reduce mortgage processing time by about 10 days.  This represents 20% of the average processing time. This faster processing time is NOT producing riskier loans.  Thus, this is a net benefit to both consumers and lenders.

Additionally, default rates tank by a whopping 25%.  This indicates that the credit process is superior to the antiquated analog method of traditional banks.

Here is an excerpt from their report:

“… Our results suggest that recent technological innovations are improving the efficiency of the U.S. mortgage market. We find that Fintech lenders process mortgages more quickly without increasing loan risk, respond more elastically to demand shocks, and increase the propensity to refinance.  This is so especially among borrowers that are likely to benefit from it. We find, however, little evidence that Fintech lending is more effective at allocating credit to otherwise constrained borrowers.”

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