Did Technology Contribute to the Housing Boom? Evidence from MERS

Abstract

We examine the effects of the Mortgage Electronic Registration System, or MERS, on mortgage origination volumes and foreclosure rates prior to the Great Recession. MERS was introduced in the late 1990s and significantly reduced the cost and time associated with secondary mortgage sales. Using novel data from the Massachusetts Registry of Deeds, we show that the introduction of MERS led to an expansion in mortgage credit supply that was primarily fueled by nonbank lenders originating mortgages to low-income borrowers. We also find that foreclosure rates were higher on these mortgages. Our paper provides a new explanation for the credit supply increases observed prior to the 2008 financial crisis and for the disproportionate supply increase observed in low-income areas.

Keywords: Credit supply, Housing boom, Financial innovation, Fintech, Mortgages, Nonbank lenders

JEL Classification: D22, D24, G21, G23, G51, L11, O3