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Technology-based Fintech mortgage may be the answer to reducing, and ultimately eliminating, racial bias and discrimination in lending, according to a study by Case Western Reserve University and the American Enterprise Institute (AEI).
After a long history of well-known racial discrimination and unequal outcomes from traditional lenders in the market, academic researchers have provided evidence that Fintech mortgage lenders show little to no gap in lending terms provided to Black and Hispanic borrowers after adjusting for GSE credit-pricing determinants and loan size. Evidence was provided in the paper, "The Impact of FinTech on Discrimination in Mortgage Lending."
"The mortgage market has historically been plagued by racial discrimination, and recent data show ongoing disparities in the terms offered to minority borrowers by traditional lenders," said Dr. Daniel Shoag, associate professor of economics at Case Western University and co-author of the study. "This paper uses new, proprietary data to study discrepancies in terms offered to Black and Hispanic borrowers by FinTech lenders. Like prior literature, it finds that, unlike traditional lenders, FinTech loans do not show statistically significant differences in fee-adjusted terms."
The mortgage industry is transforming rapidly as more technology becomes implemented, largely due to the rise of new Fintech leaders. Dr. Shoag plans on virtually presenting the findings in his paper at the National Tax Association's annual conference to further highlight these developments and its widespread impact on reducing housing discrimination. The presentation will be part of the Race Disparities in Housing session on Friday, November 19.
"The rise of FinTech lenders has been a game-changer, and our findings also suggest this increased competition has led traditional lenders to adjust their business practices." said Stan Veuger, co-author of the paper and senior economic policy fellow at AEI. "Our data suggest FinTech may not only reduce racial discrepancies in the mortgage market by providing credit directly on similar terms, but that the growth of these lenders may be inducing changes among non-FinTech lenders as well."