Do Fintech Firms Excel in Risk Assessment for U.S. 30-Year Conforming Residential Mortgages?
Open Access
Abstract
This study examines whether fintech lenders outperform traditional banks and non-fintech non-banks in risk assessment for U.S. 30-year fixed-rate conforming mortgages. Analyzing Fannie Mae and Freddie Mac loans from Q1 2012 to Q1 2020 using ROC/AUC and risk-pricing regressions, we find fintech lenders have lower predictive accuracy and pricing misalignment, charging higher rates to borrowers who remain current and lower rates to those who default or prepay. These results indicate that conforming mortgage regulations and rapid loan sales to government-sponsored enterprises (GSEs) diminish fintech firms’ incentives for enhanced borrower screening, thus reducing their risk assessment effectiveness.Keywords
This publication has 26 references indexed in Scilit:
- Can the development of Fintech mitigate non-performing loan risk?Finance Research Letters, 2024
- Fintech lenders and borrowers screening: Superior abilities or lax practices?Finance Research Letters, 2024
- Fintech and big tech credit: Drivers of the growth of digital lendingJournal of Banking & Finance, 2022
- Does Fintech credit substitute for traditional credit? Evidence from 78 countriesFinance Research Letters, 2022
- Consumer-lending discrimination in the FinTech EraJournal of Financial Economics, 2022
- RETRACTED: Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural DisastersThe Review of Financial Studies, 2021
- Fintech Borrowers: Lax Screening or Cream-Skimming?The Review of Financial Studies, 2020
- Does Securitization Weaken Screening Incentives?Journal of Financial and Quantitative Analysis, 2020
- Fintech, regulatory arbitrage, and the rise of shadow banksJournal of Financial Economics, 2018
- Securitization without risk transferJournal of Financial Economics, 2013