rightwinger
Award Winning USMB Paid Messageboard Poster
- Aug 4, 2009
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As usual, you need to folow the money
House flippers triggered the US housing market crash, not poor subprime borrowers
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldnāt afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
Analyzing a huge data set of anonymous credit scores from Equifax, a credit reporting bureau, the economists found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distributionāand that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scoresāthe āsubprimeā borrowers who supposedly caused the crisisātheir borrowing stayed virtually constant throughout the boom. And while itās true that these types of borrowers usually default at relatively higher rates, they didnāt after the 2007 housing collapse.
House flippers triggered the US housing market crash, not poor subprime borrowers
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldnāt afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
Analyzing a huge data set of anonymous credit scores from Equifax, a credit reporting bureau, the economists found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distributionāand that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scoresāthe āsubprimeā borrowers who supposedly caused the crisisātheir borrowing stayed virtually constant throughout the boom. And while itās true that these types of borrowers usually default at relatively higher rates, they didnāt after the 2007 housing collapse.