Consumer Lending Discrimination in the FinTech Era

Technology-based ("FinTech") lenders increased their market share of U.S. mortgage lending from 2 percent to 8 percent 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 percent 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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“…SeeBartlett et al (2017) andFuster et al (2017a) for recent studies of these issues in the context of the U.S. mortgage market.…”

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confidence: 99%

The Role of Technology in Mortgage Lending

Fuster

Plosser

Schnabl

et al. 2019

The Review of Financial Studies

693

267

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“…A recent review of studies of mortgage loans suggests that algorithmic loan origination may be less biased than face-to-face assessment because it results in fewer rejected applications, but both approaches lead to African American and Latinx customers paying higher interest rates. 52 A comparison between a logit model and a machine-learning model found that the machine-learning model triangulated almost perfectly the association between race and mortgage default using other borrower characteristics. 53 This is concerning because race-based housing discrimination is illegal.…”

Section: Ethical Responsibilities and Other Challengesmentioning

confidence: 99%

Translational Health Disparities Research in a Data-Rich World

et al. 2019

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Background: Despite decades of research and interventions, significant health disparities persist. Seventeen years is the estimated time to translate scientific discoveries into public health action. This Narrative Review argues that the translation process could be accelerated if representative data were gathered and used in more innovative and efficient ways. Methods: The National Institute on Minority Health and Health Disparities led a multiyear visioning process to identify research opportunities designed to frame the next decade of research and actions to improve minority health and reduce health disparities. ''Big data'' was identified as a research opportunity and experts collaborated on a systematic vision of how to use big data both to improve the granularity of information for place-based study and to efficiently translate health disparities research into improved population health. This Narrative Review is the result of that collaboration. Results: Big data could enhance the process of translating scientific findings into reduced health disparities by contributing information at fine spatial and temporal scales suited to interventions. In addition, big data could fill pressing needs for health care system, genomic, and social determinant data to understand mechanisms. Finally, big data could lead to appropriately personalized health care for demographic groups. Rich new resources, including social media, electronic health records, sensor information from digital devices, and crowd-sourced and citizen-collected data, have the potential to complement more traditional data from health surveys, administrative data, and investigator-initiated registries or cohorts. This Narrative Review argues for a renewed focus on translational research cycles to accomplish this continual assessment. Conclusion: The promise of big data extends from etiology research to the evaluation of large-scale interventions and offers the opportunity to accelerate translation of health disparities studies. This data-rich world for health disparities research, however, will require continual assessment for efficacy, ethical rigor, and potential algorithmic or system bias.

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“…In particular, they discuss that even if lenders are not allowed to include race as a predictor, the new technology still may create winners and losers along racial lines (Fuster et al, 2018a). Bartlett, Morse, Stanton, and Wallace (2019) find that fintech lenders charge minority borrowers higher interest rates, but so do nonfintech lenders. In fact, they find that fintech lenders discriminate less than traditional, face-to-face lenders.…”

Section: Ii1 Fintech In the Us Mortgage Marketmentioning

confidence: 99%

“…Given the dramatic growth of fintech innovations in recent years and their disruptive nature, we expect that the industry will continue to change at a rapid pace. In fact, Bartlett et al (2019) Source: HMDA and U.S. Census Bureau data from the FFIEC. Note: AMI = area median income.…”

Section: Conclusion and Policy Implicationsmentioning

confidence: 99%

Fintech Lending and Mortgage Credit Access

Jagtiani¹,

Lambie‐Hanson²,

Lambie-Hanson³

2019

Working Paper (Federal Reserve Bank of Philadelphia)

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Following the 2008 financial crisis, mortgage credit tightened and banks lost significant mortgage market share to nonbank lenders, including to fintech firms recently. Have fintech firms expanded credit access, or are their customers similar to those of traditional lenders? Unlike in small business and unsecured consumers lending, fintech mortgage lenders do not have the same incentives or flexibility to use alternative data for credit decisions because of stringent mortgage origination requirements. Fintech loans are broadly similar to those made by traditional lenders, despite innovations in the marketing and the application process. However, nonbanks market to consumers with weaker credit scores than do banks, and fintech lenders have greater market shares in areas with lower credit scores and higher mortgage denial rates.

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Consumer Lending Discrimination in the FinTech Era

Cited by 111 publications

References 24 publications

The Role of Technology in Mortgage Lending

The Role of Technology in Mortgage Lending

Translational Health Disparities Research in a Data-Rich World

Fintech Lending and Mortgage Credit Access

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