FinTech mortgage lenders solving or exploiting a friction? evidence on risk layering and prepayment risk of conforming loans
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1191221609-MIT.pdf
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894.76 KB
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Author(s)
Wang, Yupeng(Scientist in business management)Massachusetts Institute of Technology.
Advisor(s)
Antoinette Schoar.
Alternative Title
Fin Tech mortgage lenders solving or exploiting a friction? evidence on risk layering and prepayment risk of conforming loans
Evidence on risk layering and prepayment risk of conforming loans
Date Issued
2020
Publisher
Massachusetts Institute of Technology
Abstract
Fintech mortgage lenders have become an increasingly important source of mortgage credit in the US. Using loan-level data on mortgages sold to Fannie Mae and Freddie Mac (GSEs), I find that compared to traditional lenders, Fintech lenders are more likely to address credit demand from low credit score borrowers. However, they may be able to exploit two frictions in the GSEs' pricing and securitization setup. First, Fintech loans tend to have more risk layers conditional on paying the same guarantee fee, which are charged 15 basis points less of interest rate but translate to 0.5% higher delinquency rate ex-post. Second, Fintech loans get prepaid more often (11%). They get cross-subsidies in the to-be-announced mortgage-backed-securities market since these loans are pooled together with low prepayment risk loans in the same contract.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, May, 2020
Cataloged from the official PDF of thesis.
Includes bibliographical references (pages 55-56).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
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MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.
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