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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

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Felipe Severino

Tuck School of Business at Dartmouth

Date Written: March 2016

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.

Keywords: Mortgage credit, mortgage origination, financial crisis, income

JEL Classification: E44, E51, G21, L85, O51, R21, R30, D30, G21

Suggested Citation

Adelino, Manuel and Schoar, Antoinette and Severino, Felipe, Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class (March 2016). Tuck School of Business Working Paper No. 2546427; Duke I&E Research Paper No. 15-8. Available at SSRN: https://ssrn.com/abstract=2546427 or http://dx.doi.org/10.2139/ssrn.2546427

Manuel Adelino

Duke University ( email )

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Felipe Severino (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.dartmouth.edu/~fseverino

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