A working paper from the National Bureau of Economic Research says that rather than the poorest American homebuyers taking out mortgages that they could not afford during the 2001-2006 credit peak, the crash resulted from middle-class and wealthy borrowers.
The study says that credit growth in the pre-crisis years was concentrated in the prime segment and that the rise in mortgage defaults during the crisis was centered in the middle of the credit score distribution.
It also reveals that those defaulting on mortgages were mostly real estate investors.
Economists Stefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College; found that mortgage borrowing in the subprime sector remained relatively flat during the boom.
The analysis of Equifax data also shows that, while 70% of the foreclosures during the boom were subprime borrowers, they accounted for just 35% during the housing crash.
The NBER report considers that it was property flippers and other investors that found themselves over-leveraged leading to one of the worst ever global financial disasters.
More market update:
The global financial crisis triggered by the housing market crash was not due to subprime mortgage lending a new study says.