Loan originations and defaults in the mortgage crisis: The role of the middle class

Published

Journal Article (Review)

© The Author 2016. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on subprime and poor borrowers, we show that mortgage originations increased for borrowers across all income levels and FICO scores. The relation between mortgage growth and income growth at the individual level remained positive throughout the pre-2007 period. Finally, middle-income, highincome, and prime borrowers all sharply increased their share of delinquencies in the crisis. These results are consistent withademand-side view, where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped.

Full Text

Duke Authors

Cited Authors

  • Adelino, M; Schoar, A; Severino, F

Published Date

  • January 1, 2016

Published In

Volume / Issue

  • 29 / 7

Start / End Page

  • 1635 - 1670

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhw018

Citation Source

  • Scopus