Innovations in information technology and the mortgage market

In this paper I analyze the effects of innovations in information technology on the mortgage and housing markets using a life-cycle model with incomplete markets and idiosyncratic income, as well as moving and house price shocks. I explicitly model the housing tenure choices of households. Lenders offer individual-specific mortgage contracts to home buyers, and the terms of these contracts are endogenously determined. I find that, as lenders have better information about the households, the average mortgage premium, foreclosure rate, and homeownership rate all increase while average down payment decreases. Hence, improvements in information technology can rationalize the relaxation of mortgage credit terms, which has been suggested as one of the main reasons for the latest financial crisis.