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Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class

Author(s)
Adelino, Manuel; Schoar, Antoinette; Severino, Felipe
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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.
Date issued
2016-03
URI
http://hdl.handle.net/1721.1/109226
Department
Sloan School of Management
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
ISSN
0893-9454
1465-7368

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