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Report
The role of technology in mortgage lending
Technology-based (?FinTech?) lenders increased their market share of U.S. mortgage lending from 2 percent to 8 percent from 2010 to 2016. Using market-wide, loan-level data on U.S. mortgage applications and originations, we show that FinTech lenders process mortgage applications about 20 percent faster than other lenders, even when controlling for detailed loan, borrower, and geographic observables. Faster processing does not come at the cost of higher defaults. FinTech lenders adjust supply more elastically than other lenders in response to exogenous mortgage demand shocks, thereby ...
Report
Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities
Banks carry significant exposures to nonbanks from direct dealings, but they can also be exposed, indirectly, through losses in asset values resulting from fire-sale events. We assess the vulnerability of U.S. banks to fire sales potentially originating from any of twelve separate nonbank segments and identify network-like externalities driven by the interconnectedness across nonbank types in terms of asset holdings. We document that such network externalities can contribute to very large multiples of an original fire sale, thus suggesting that conventional assessments of fire-sale ...
Discussion Paper
Enhancing Monitoring of NBFI Exposure: The Case of Open-End Funds
Non-bank financial institutions (NBFIs) have grown steadily over the last two decades, becoming important providers of financial intermediation services. As NBFIs naturally interact with banking institutions in many markets and provide a wide range of services, banks may develop significant direct exposures stemming from these counterparty relationships. However, banks may be also exposed to NBFIs indirectly, simply by virtue of commonality in asset holdings. This post and its companion piece focus on this indirect form of exposure and propose ways to identify and quantify such ...
Report
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
We study how intermediaries—mortgage servicers—shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity ...
Discussion Paper
Banks and Nonbanks Are Not Separate, but Interwoven
In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto ...
Discussion Paper
The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus
Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections ...
Working Paper
Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities
Banks carry significant exposures to nonbanks from direct dealings, but they can also be exposed, indirectly, through losses in asset values resulting from fire-sale events. We assess the vulnerability of U.S. banks to fire sales potentially originating from any of twelve separate non-bank segments and identify network-like externalities driven by the interconnectedness across non-bank types in terms of asset holdings. We document that such network externalities can contribute to very large multiples of an original fire sale, thus suggesting that conventional assessments of fire-sale ...
Working Paper
Defining Households That Are Underserved in Digital Payment Services
US households that lack digital means of making and receiving payments cannot participate fully in an increasingly digitized economy. Assessing the scope of this problem and addressing it requires a definition of households that are underserved in digital payments. Traditional definitions of households underserved in the banking system—those that are unbanked and those that are underbanked—do not account for the ownership of nonbank transaction accounts that can be used to make and receive digital payments. In this paper, we define households underserved in digital payments by considering ...
Report
Where Do Banks End and NBFIs Begin?
In recent years, assets of nonbank financial intermediaries (NBFIs) have grown significantly relative to those of banks. These two sectors are commonly viewed either as operating in parallel, performing different activities, or as substitutes, performing substantially similar activities, with banks inside and NBFIs outside the perimeter of banking regulation. We argue instead that NBFI and bank businesses and risks are so interwoven that they are better described as having transformed over time, rather than as having migrated from banks to NBFIs. These transformations are at least in part a ...
Discussion Paper
The Rise in Mortgage Fees: Evidence from HMDA Data
Although rising mortgage interest rates between 2022 and 2023 captured headlines, the cost of upfront mortgage fees also increased significantly during that time. Using new Home Mortgage Disclosure Act data on fees, collected since 2018, we estimate that borrowers’ out-of-pocket upfront costs for getting a home purchase mortgage rose nearly 33 percent from 2021 to 2023, to almost $6,500. We document that the main driver of this increase has been rising payments of “discount points,” as opposed to other types of lender fees and third-party fees. We show that loans originated by nonbanks, ...