Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class
Name
Schoar_Loan originations.pdf
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572.7 KB
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Adobe PDF
Checksum (MD5)
2bb583fbfc2ed37319ed8bf0faa402ae
Author(s)
Adelino, Manuel
Schoar, Antoinette
Severino, Felipe
Date Issued
March 2016
Journal
Review of Financial Studies
Publisher
Oxford University Press
Citation
Adelino, Manuel; Schoar, Antoinette and Severino, Felipe. “Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class.” Review of Financial Studies 29, no. 7 (March 2016): 1635–1670 © 2016 Society for Financial Studies
Version
Author's final manuscript
Abstract
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, high-income, and prime borrowers all sharply increased their share of delinquencies in the crisis. These results are consistent with a demand-side view, where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/rfs/hhw018
