Terner Center Blog: No Limits

The End of the Mortgage “Dark Age”?

Posted on by Alison Mills

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center.

This piece is the fourth in a series by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here.

The End of the Mortgage “Dark Age”? Fintech and the Equity Implications of Disruptive Technology in the U.S. Residential Mortgage Market

At the beginning of 2016, Quicken Loans introduced Rocket Mortgage to the nation, and less than two years later, became the largest mortgage lender in the country. Since 2008, Quicken has increased its mortgage volume eightfold, but it is far from the only online lender making strides into the U.S. residential mortgage market. In the last 10 years, traditional, commercial banks’ market share of residential mortgage lending has declined from 74 percent to 52 percent. During this same time period, non-bank mortgage lenders and financial technology lenders (referred to from here simply as “fintech” lenders), who conduct nearly the entire mortgage origination process online, have increased their total market share from about 5 percent to well over 15 percent.

The implications of the rise of fintech lending are still unclear. Introducing internet technology into the mortgage origination process has the potential to make mortgages cheaper and more accessible by reducing the costs of information and by hosting all necessary services on a single digital platform. Technology has allowed fintech lenders to use big data approaches to customize their assessment of borrower default risk through complex, sophisticated algorithms, thereby assessing credit risk differently than traditional banks.

However, we don’t know whether the rise of fintech and these new approaches to assessing risk make mortgages more or less accessible for homebuyers across different demographic groups. Since online mortgage lending may present new and disproportionate income, language, or other data-determined barriers for lower-income, non-white, or rural households, it is important to examine the equity issues raised by these new technologies.

Using loan-level mortgage application data collected under the Home Mortgage Disclosure Act (HMDA) from 2016, which provides the borrower’s race, income, loan amount, census tract information, loan type, application outcome, and lender’s identity, I compared origination outcomes for low-income and minority groups applying to both traditional and fintech lenders. In a capstone project for my Master’s of City Planning, I explored this topic in depth to understand 1) whether fintech expands access to credit and 2) where geographically fintech has penetrated the market most.

The results of my analysis suggest that fintech improves access to the mortgage application process for African Americans – a group that has traditionally been underserved by mortgage lenders (Figure 1).  On average, a greater share of African Americans submit applications to fintech lenders compared to traditional lenders: whether this is due to strategic targeting and marketing on the part of fintech lenders or due to a less burdensome application system is unclear.  However, what is also striking is that among mortgage applicants to fintech lenders, a much greater share do not report race or ethnicity information. Fully 22 percent of fintech applications do not include information about the borrower’s race or ethnicity.

Figure 1. Race of Applicants – National Level

This missing data makes it much more difficult to assess whether there are racial disparities in approval or denial rates. For several fintech lenders, the missing data can affect more than half of all applications in the dataset.

Despite the predominance of missing race information, the data still reveal that, even when holding income and other factors (1) constant, African American applicants are more likely than non-Hispanic White applicants to be denied by a fintech lender. Fintech’s denial rate of black applicants is also higher than that of traditional banks (Figure 2), suggesting that racial disparities exist in the access to fintech mortgage credit.

Figure 2. Denial Rate by Race – National Level

Lastly, I also find that fintech lenders show the greatest market penetration in cities that were hit hardest during the recession (Figure 3). Taking a deeper dive into mortgage data in California specifically, fintech lenders have made the deepest inroads in less expensive markets that may better conform to federal loan limits and in markets whose home values showed deep declines during the subprime mortgage crisis but have since rebounded dramatically. Fintech lending is also highly correlated with the recent growth in the median home values of an area.

Figure 3. Geographic Penetration of Fintech Lending

While the introduction of technology in the mortgage market has the potential to increase the ease of applying for and accessing mortgage credit, this has not yet fully materialized in practice. My research has demonstrated that fintech credit is concentrated in certain areas and may be less accessible for particular low-income and minority groups. The lending practices of fintech lenders should continue to be studied to identify and prevent potential discriminatory practices.

(1) The model controlled for applicant income, loan amount, loan type, and location of applicant.


Strengthening Feasibility Studies for Inclusionary Housing Policies

Posted on by Terner Center

Paired with other public investments and financing products, inclusionary zoning policies can increase the supply of affordable housing, particularly in high-cost regions. Inclusionary policies work by requiring or offering incentives to developers to include below-market-rate (BMR) units in new housing developments, or pay a fee to an affordable housing fund in the city’s budget. These policies also can include offsets to developers, such as density bonuses or permitting streamlining. As Grounded Solutions Network and Lincoln Land Institute identified in a recent study, over 800 jurisdictions in the United States currently have inclusionary zoning programs. Yet these policies can be controversial,…


Announcing New Resources for Understanding Land Use in California

Posted on by Terner Center

Local land use--the accumulated set of decisions and policies about whether, how, and what we build--is a current that runs throughout much of our work here at the Terner Center. Land use policy not only shapes the supply of housing in a region, but is also deeply intertwined with sustainability, economic mobility, and access to neighborhoods and opportunity. With the support of the Department of Housing and Community Development, in 2017 the Terner Center launched a survey of planners across the state to learn more about local land use policy contexts in California. Today we are delighted to release the…


InnovateHousing: New Ideas on the Future of Home

Posted on by Terner Center

In the face of a national housing crisis, where an unprecedented number of families are struggling to afford a home, can technology and the tech sector offer solutions? This was a key question animating InnovateHousing: New Ideas on the Future of Home, co-hosted by the Terner Center and Fannie Mae on Thursday, November 8th. The conference was invitation-only, but also accessible via a livestream. It brought together over four hundred people in-person and virtually, with a huge diversity of stakeholders and sectors represented on the panels and in the audience, including policymakers, entrepreneurs, lenders, developers, academics, and advocates. In opening…


Disparity In Departure: Los Angeles Region Supplement

Posted on by Elizabeth Kneebone and Issi Romem

This study was published jointly by BuildZoom and the Terner Center for Housing Innovation at UC Berkeley. Source: https://en.wikipedia.org/wiki/Coachella_Valley The Bay Area is undoubtedly at the forefront of a housing affordability crisis that is pricing a growing number of households—particularly lower-income households and households of color—out of the region. But it is not alone. Those same price pressures are apparent in other parts of the state (and country), including the Los Angeles region. While the two regions are different in many ways, they are similar in two key respects: both have powerful economies that have been drawing people in for a long time, and…


Are Tiny Houses Useful and Feasible for Addressing the Homelessness Crisis?

Posted on by Rebecca Coleman

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the fourth in a series to be released this summer by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here. Tiny houses are on many people’s minds as a possible solution to address our homelessness…


School District Employee Housing in California

Posted on by Sean Doocy

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the third in a series to be released this summer by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here. Housing costs in California have risen dramatically in recent years, particularly in employment-rich coastal urban…


Mapping Oakland’s Vacant Parcels

Posted on by Hayley Raetz

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the second in a series to be released this summer by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here. Vacant Parcels in Oakland Despite Oakland's high demand for housing, vacant parcels remain abundant…


Measuring the Housing Permitting Process in San Francisco

Posted on by Brian Goggin

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the first in a series to be released this summer by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. How long does it take to get a building permit in the Bay Area? Ask 10 developers, you will likely get…


Aligning Sustainable and Affordable Development in California

Posted on by Sarah Mawhorter and Carol Galante

California has long been considered a leader in combating climate change, but the state’s housing crisis—with inadequate supply in urban cores and a legacy of sprawling suburban development—threatens its ability to achieve its greenhouse gas emission reduction goals The Sustainable Communities and Climate Protection Act (Senate Bill 375) aligns land use and transportation planning in order to drive development in transit-accessible places and reduce car dependency and vehicle emissions. SB 375 resulted directly from the goals laid out in the Global Warming Solutions Act of 2006 (Assembly Bill 32) and was signed into law in 2008. SB 375 requires California…