Prateek Mahajan

Did FinTech Lenders Facilitate PPP Fraud?

(with John M. Griffin and Samuel Kruger)

Journal of Finance, 78: 1777-1827 (2023) 

[SSRN Version]

In the $793 billion Paycheck Protection Program (PPP), we examine metrics related to potential misreporting including non-registered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies with jobs reported in another government program. These measures consistently concentrate in certain FinTech lenders and are cross-verified by seven additional measures. FinTech market share increased significantly over time, and suspicious lending by FinTechs in 2021 is four times the level at the start of the program. Suspicious loans are being overwhelmingly forgiven at similar rates to other loans. 

Cited by U.S. House Committee Report on PPP Fraud and PPP and Bank Fraud Enforcement Harmonization Act of 2022

Media Coverage: New York Times, Bloomberg, USA Today, National Public Radio, Washington Post, Atlanta Journal-Constitution, Miami Herald, CNN, NBC News, Fox News, and over 200 others

Is Fraud Contagious? Social Connections and the Looting of COVID Relief Programs

(with John M. Griffin and Samuel Kruger)

Review of Financial Studies, Forthcoming

Fraud indicators in the Paycheck Protection Program (PPP) COVID relief program are highly geographically concentrated. Zip codes and counties with high rates of suspicious PPP loans exhibit strong social connections to one another with evidence of fraud spreading spatially over time through social connections. Individuals in suspicious social media groups have higher rates of PPP fraud, and socially connected zip codes frequently use the same specific FinTech lenders, consistent with social connections influencing particular loan decisions. Our findings suggest that more proactive data analysis in fraud prevention, detection, and prosecution is needed to prevent the social spread of fraudulent schemes. 

Media Coverage: NBC

Did Pandemic Relief Fraud Inflate House Prices?

(with John M. Griffin and Samuel Kruger)

Revise and Resubmit at Journal of Financial Economics

Pandemic fraud is geographically concentrated and stimulated local purchases with effects on prices. Fraudulent PPP loan recipients significantly increased their home purchase rate after receiving a loan compared to non-fraudulent PPP recipients, and house prices in high fraud zip codes increased 5.8 percentage points more than in low fraud zip codes within the same county, with similar effects after controlling for other explanations for house price appreciation during COVID. Zip codes with fraud also experience heightened vehicle purchases and consumer spending in 2020 and 2021, with a return to normal in 2022.

Media Coverage: Wall Street Journal, Associated Press, National Public Radio, CNBC, Fox Business

The Rise in Insurance Costs for Commercial Properties: Causes, Effects on Rents, and the Role of Owners

(with Minjoo Kim and Zirui Wang)

Using a large and novel set of property-level operating statements for commercial properties, we examine the causes of the increase in insurance costs, the effects of this increase on rents and profits, and how property owners are managing this increase. First, we document a large and persistent year-over-year increase in insurance costs across nearly all regions of the US during the last decade. 95% of individuals live in counties where the increase in commercial insurance costs is at least double the increase in homeowners insurance costs, which is due in part to regulatory frictions in the homeowners insurance market. Second, we provide evidence of three main drivers of the rise in insurance costs: heightened pricing of local risk, a large increase in reinsurance costs, and cross-subsidization across states. Third, we find that 67% of the rise in insurance costs is passed through to rents on average; however, the passthrough to rent is concave and decreasing over time. Finally, we examine the role of property owners and find that 1) larger owners are able to maintain lower insurance costs, 2) the effects of owner size on insurance costs are larger in high-risk areas, and 3) owners with lower average portfolio risk have lower insurance costs even holding the risk of a given property fixed. Our findings suggest that insurance pricing for commercial properties is driven by both local risk factors and broader systematic risk exposure, with risks extending beyond individual properties through insurers and property owners' portfolios.  

Is Auto ABS a Vehicle for Misreporting?

Using data on nearly 20 million auto loans from 361 auto asset-backed security (ABS) deals, I find signs of misreporting that are consistent with those found in other forms of ABS (such as RMBS and CMBS). Loans immediately below discrete LTV are found to be riskier. Borrowers/dealers are inflating book values of vehicles to lower LTV and overstating income to lower PTI and DTI. Loans with misreporting are defaulting at increasing higher rates post-COVID. The misreporting is partially priced at the loan-level in the form of higher interest rates, but investors do not appear to be compensated for the added risk at the deal-level.