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Challenging the prevailing narrative on the mortgage boom and housing crisis in the USA

An article published in the Journal of Monetary Economics finds that in the United States, mortgage growth in 2001-2006 was greatest for borrowers with high credit scores and mortgage defaults in 2007-2009 was greatest for prime borrowers. These results shift the focus from borrower characteristics, such as credit scores, to borrower behavior, particularly investment activity.

The study is co-authored by Stefania Albanesi (University of Pittsburgh), GSEM Professor Giacomo De Giorgi, and Jaromir Nosal (Boston College). Their analysis offers a new narrative that provides insights related to discussions on regulatory reform and policy actions designed to mitigate the risks of similar episodes in the future.


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Using a nationally representative panel of credit reports, we show that the 2001–2006 credit boom and the 2007–2009 rise in mortgage defaults were concentrated among prime borrowers. Life cycle effects and mortgage investor activity are primary factors behind the evolution of debt and default in this period. These results hold across geographical regions, suggesting other factors, such as demographics, may account for the positive correlation between the concentration of subprime borrowers, the rise in debt and severity of the recession. Our findings provide a new narrative that challenges the role of subprime credit in the housing boom and bust.

Access the study: Credit growth and the financial crisis: A new narrative

> Click here to view the GSEM faculty’s publications in top-tier journals.


January 13, 2023
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