Automated Underwriting and Housing Market Dynamics

Abstract: We study how the 1990s adoption of now widely-used automated mortgage underwriting systems affected credit supply, house prices and their comovement across locations. The effects go well beyond processing improvements. By implementing more complex, statistically-informed lending rules, the systems allowed households to borrow more, pushing up house prices. Furthermore, by transmitting a common set of credit standards across lenders, the new technology increased credit and house price synchronization. Together, our results illustrate how new lending technology can generate correlated credit supply shocks, contributing to house price booms and increasing market interconnectedness.

DOI: https://doi.org/10.24149/wp2506r1

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