Fintech, Financial Innovation, and Mortgage Lending
Paper Session
Saturday, Jan. 7, 2023 10:15 AM - 12:15 PM (CST)
- Chair: James Vickery, Federal Reserve Bank of Philadelphia
Shadow Bank and Fintech Mortgage Securitization
Abstract
Agency MBS issuers can choose among three securitization venues: individual securitization where an issuer uses her own loans to create an MBS, collective securitization where different issuers deliver loans into a common MBS, and cash window where issuers receive immediate cash payment by selling loans to Fannie Mae or Freddie Mac, who then conduct securitization. We find that issuers with greater immediate liquidity needs (e.g., smaller issuers and shadow banks) have a larger fraction of their loans securitized through cash window. The uniform pricing feature of collective securitization results in cross-subsidy from traditional banks, who have relatively high-value loans, to shadow banks, especially fintech issuers, who have relatively low-value loans; hence, shadow banks and traditional banks prefer collective and individual securitization, respectively. We further show that securitization venues affect the quality and quantity of loans that issuers securitize, using Fannie Mae's policy shock on collective securitization and the COVID-19 shock on cash window.Financial Technology and the 1990s Housing Boom
Abstract
"This paper measures the effects of automated mortgage underwriting systems on leverage and house prices during the 1990s. In addition to reducing processing times, these systems expanded credit access by incorporating new rules informed by statistical analysis. In particular, Freddie Mac’s underwriting system, Loan Prospector, applied a proprietary set of rules which allowed lenders to approve loans with high debt-to-income ratios. I obtain a list of lenders who were using Loan Prospector shortly after its release in 1995, and use variation in the market share of these lenders to study the effect on house prices. I show that early adopters of Loan Prospector expanded high leverage lending, and that counties exposed to these lenders experienced substantial relative growth in house prices starting in 1995. Based on my estimates, I argue that gradual adoption of the GSEs’ underwriting systems can explain a substantial share of U.S. house price growth during the late 1990s"Affordability, Financial Innovation, and the Start of the Housing Boom
Abstract
At their peak in 2005, nearly half of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier access to credit through teaser interest rates, interest-only or negative amortization periods, extended payment terms, and back-ended balloon payments have been the subject of much regulatory and popular criticism. In this paper, we construct a novel county-level dataset to analyze the relationship between rising house prices and non-traditional features of mortgage contracts. We apply a break-point methodology and find that in housing markets with breaks in the mid-2000s, a strong rise in the use of non-traditional mortgages preceded the start of the housing boom. Furthermore, their rise was coupled with declining denial rates and a shift from FHA to subprime mortgages. Our findings support the view that a change in mortgage contract availability and a shift toward subprime borrowers helped to fuel the rise of house prices during the last decade.Discussant(s)
Jordan Nickerson
,
University of Washington
Paul Willen
,
Federal Reserve Bank of Boston
Lara Pia Loewenstein
,
Federal Reserve Bank of Cleveland
James Conklin
,
University of Georgia
JEL Classifications
- G2 - Financial Institutions and Services