Skip to content

Insight

  • Insight

Fintechs Approving Mortgage Loans Faster than Traditional Financial Institutions

Fiserv Completes First Data Integration and FIS Completes Worldpay Acquisition

Fintechs Approving Mortgage Loans Faster than Traditional Financial Institutions
Fintechs Approving Mortgage Loans Faster than Traditional Financial InstitutionsA New York Fed study, “The Role of Technology in Mortgage Lending,” analyzed how the U.S. residential mortgage industry is experiencing a wave of technological innovation as both start-ups and existing lenders seek ways to automate, simplify and speed up each step of the mortgage origination process.

The report found mortgage lenders only using online applications approve loans faster, see fewer defaults, stimulate additional refinancing and react to request swings better than traditional banking institutions.

The study put fintech lenders at the forefront of this development because they have a complete end-to-end online mortgage application and approval process supported by centralized underwriting operations, rather than the traditional network of local brokers or bricks and mortar branches.

The white paper, a part of the Fed’s wider effort to ascertain how fintechs could transform financial services, defined fintech lenders as offering an application process completed entirely online. “The emergence of several stand-alone fintech firms as major lenders over the last few years is a strong indicator that fundamental change is underway,” the report read. “These firms are at the technological frontier and focus exclusively on the new business model.”

For example, Rocket Mortgage from Quicken Loans, introduced in 2015, provides a tool to electronically collect documentation about borrower’s income, assets and credit history, allowing the lender to make approval decisions based on an online application in as little as eight minutes. “In the aftermath of the 2008 financial crisis, fintech lenders have become an increasingly important source of mortgage credit to U.S. households,” the report maintained.

“Fintech lenders process mortgages more quickly without increasing loan risk, respond more elastically to demand shocks and increase the propensity to refinance, especially among borrowers that are likely to benefit from it,” the report read. “We find, however, little evidence that fintech lending is more effective at allocating credit to otherwise constrained borrowers.”

As of December 2016, fintech lenders are all standalone mortgage originators that primarily securitize mortgages and operate without deposit financing or a branch network. Their lending has grown annually by 30% from $34 billion of total originations in 2010 (2% of market) to $161 billion in 2016 (8% of market). The report noted particularly pronounced growth for Federal Housing Administration insured refinances and mortgages, a market segment primarily serving lower income borrowers.

The New York Fed reviewed data on mortgages issued between 2010 and 2016. Fintech lending has grown annually by 30 percent from $34 billion to $161 billion, 8 percent of the market, in that time, it reported. Much of that growth is in refinances and loans for low-income Americans insured by the FHA.

The New York Fed studied FHA-insured mortgages, the chanciest portion of the marketplace, to measure how fintechs and banks compare in default rates. It discovered fintech mortgages defaulted at a 25 percent lower rate than those from traditional lenders.

The New York Fed study suggested mortgage lending is arguably the market in which technology has had the largest economic impact thus far, but other loan markets may undergo similar transformations in the future. “Our analysis identifies several frictions in U.S. mortgage markets and examines whether fintech lending alleviates them. We start by examining the effect of fintech lending on loan outcomes.”

The paper’s main premise is that the fintech lending model represents a technological innovation that reduces frictions in mortgage lending, such as lengthy loan processing, capacity constraints, inefficient refinancing, and limited access to finance by some borrowers. The alternative suggestion is that fintech lending is not special on these dimensions and that fintech lenders offer services that are similar to traditional lenders in terms of processing times and scalability.
—-

Subscribe to CCG Insights.

Print Friendly, PDF & Email

You Might Like These, Too

Wells Fargo: New Logo Can’t Mask Same Old Technology

Wells Fargo: New Logo Can’t Mask Same Old Technology

Fintech Companies Can Have Culture Problems Too

Fintech Companies Can Have Culture Problems Too

When open banking and data privacy collide

When open banking and data privacy collide

millennials and mobile wallets-full report

Millennials and Mobile Wallets

Leaders in Bank Consulting

About CCG Catalyst
Latest Insights
CCG

PHOENIX • NEW YORK • LONDON • SINGAPORE

Phone: +1-480-744-2240  • Contact Us

© 2024 CCG CATALYST. Privacy Policy & Terms of Service.
Request a Call Back
Linkedin
Subscribe
to our Insights
Subscribe
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT
BANK
FINTECH
FUSION
  • Approach
  • Services
  • Resources
  • Insights
  • Research
  • Team
  • Contact
  • Careers
  • Events
  • Home
Linkedin Search
Subscribe for Insights

INSIGHTS BY CCG CATALYST: FOR BANKS, FINTECHS, AND CREDIT UNIONS

The Fed, Real-Time Payments, Alexa and Apple P2P, Part of Payment Revolution
  • Weekly digest of what's new
  • New research snapshots
  • Exclusive access to banking and fintech research
  • Industry news
  • Invitations to webinars and webcasts