FinTech Trends

March 19, 2018
HMDA data, published each year for the preceding year, shows interesting trends over time
Technological innovation has improved the efficiency of financial intermediation in the U.S. mortgage market. And whether we want to admit it or not, technology has continued to reshape the mortgage market place. A quick glance at 2016 transaction-level HMDA data tells us that two of the top ten lenders in the U.S. are online lenders (Quicken Loans and LoanDepot). The side-by-side geo-spatial comparison of their combined market share shows significantly deeper market penetration in 2016 as compared to 2012.
HMDA Insights
How did FinTech Lenders Achieve This?
It is difficult to answer this question with certainty, but there are some undeniable market developments that have contributed to the rise of such lenders. For example, one explanation is the confluence of several trends:

  • a regulatory environment that drives banks to be risk-averse and retreat from lending to riskier borrowers
  • an unprecedented rise in computing power and processing speed
  • the availability of mobile applications to a wide range of borrowers
  • millennials' entry into the mortgage market
  • a deliberate strategy on the part of some non-bank lenders to drive volume through technology innovation that produces efficiencies and cost savings while increasing the lender footprint

In 2016, half of the top 10 lenders in the U.S. were non-bank lenders with pure online lending business models or with serious online technology offerings, two were smaller banks with significant correspondent business, and only three were big national banks (see the bar chart for details). In 2017, Quicken Loans announced that it surpassed Wells Fargo in mortgage originations.

HMDA Insights
What are Some of the Typical Characteristics of FinTech Lenders?
In February, a FRBNY staff report showed that:

  • FinTech lenders process mortgage applications about 20 percent faster than other lenders, even when controlling for detailed loan, borrower, and geographic variables.
  • FinTech lenders are able to adjust supply more elastically than other lenders in response to mortgage demand shocks.
  • FinTech lenders are able to alleviate capacity constraints associated with traditional mortgage lending.

Clearly, for mortgage lenders who are looking to grow, applying innovative technology and agile processes in every step of the loan cycle is not an option but a necessity.

For insights and business intelligence solutions for the mortgage marketplace, contact Polygon Research, Inc.