Do FinTech Mortgage Lenders Fill the Credit Gap? Evidence from Natural Disasters

Abstract

After exogenous shocks caused by natural disasters, FinTech lenders satisfy the surge in demand for reconstruction mortgages more than traditional banks and non-FinTech shadow banks. Although both FinTech and traditional bank lenders increase mortgage availability, FinTech lenders relax underwriting standards without raising interest rates or delinquency rates. Comparing lending supply channels, traditional banks respond to regulatory incentives to lend to damaged areas, whereas FinTech lenders exploit bank reliance on balance sheet lending to expand supply. FinTech lenders relax underwriting standards when under competitive pressure from traditional banks, but traditional banks do not use underwriting standards to compete with FinTech lenders.