REFinBlog

Editor: David Reiss
Brooklyn Law School

August 17, 2018

Fintech and Mortgage Lending

By David Reiss

image by InvestmentZen, www.investmentzen.com

The Trump Administration released its fourth and final report on Nonbank Financials, Fintech, and Innovation in its A Financial System That Creates Economic Opportunity series. The report differs from the previous three as it does not throw the Consumer Financial Protection Bureau under the bus when it comes to the regulation of mortgage lending.

The report highlights how nonbank mortgage lenders, early adopters of fintech, have taken an immense amount of market share from traditional mortgage lenders like banks:

Treasury recognizes that the primary residential mortgage market has experienced a fundamental shift in composition since the financial crisis, as traditional deposit-based lender-servicers have ceded sizable market share to nonbank financial firms, with the latter now accounting for approximately half of new originations. Some of this shift has been driven by the post-crisis regulatory environment, including enforcement actions brought under the False Claims Act for violations related to government loan insurance programs. Additionally, many nonbank lenders have benefitted from early adoption of financial technology innovations that speed up and simplify loan application and approval at the front-end of the mortgage origination process. Policymakers should address regulatory challenges that discourage broad primary market participation and inhibit the adoption of  technological developments with the potential to improve the customer experience, shorten origination timelines, facilitate efficient loss mitigation, and generally deliver a more reliable, lower cost mortgage product. (11)

I am not sure that the report has its causes and effects exactly right. For instance, why would banks be more disincentivized than other financial institutions because of False Claims Act lawsuits? Is the argument that banks have superior lending opportunities that are not open to nonbank mortgage lenders? If so, is that market segmentation such a bad thing? 

That being said, I think the report is right to highlight the impact of fintech on the contemporary mortgage lending environment. Consumers will certainly benefit from a shorter and more streamlined mortgage application process.

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Comments

  • John T Maher says:

    I see two things. First, a policy of enabling catch up FINTECH with Mark Carney and the Old lady in the UK in terms of ever newer and more abstruse rentier financial mechanisms. The point made that “Policymakers should address regulatory challenges that discourage broad primary market participation and inhibit the adoption of technological developments with the potential to improve the customer experience, shorten origination timelines, facilitate efficient loss mitigation, and generally deliver a more reliable, lower cost mortgage product” is well taken. However, the general trend referred to in academia of accelerationism is being legislatively contoured to favor staid businesses and weaken innovation in terms of financial products and online access. Basically, despite the aspirational language, laggard banks are being rewarded for bloat instead of agility in the marketplace and market innovators are being punished. This sets up a structural benefit in favor of the usual beltway PAC contributors who fund each election cycle and who are Trump’s real constituency.

    Second, a pretext for further deregulation by eviscerating the federal FCA and, in effect, turning the government into an even safer source of revenue for anyone seeking to defraud the already generous public trough. They need not really bother on the second point.

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