Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class
53 Pages Posted: 9 Jan 2015 Last revised: 22 Mar 2016
Date Written: March 2016
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.
Keywords: Mortgage credit, mortgage origination, financial crisis, income
JEL Classification: E44, E51, G21, L85, O51, R21, R30, D30, G21
Suggested Citation: Suggested Citation