Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom
James Conklin, W. Scott Frame, Kristopher Gerardi, and Haoyang Liu
Working Paper 2018-10
An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–06 U.S. house price boom. Contrary to this belief, we show that the house price and subprime booms occurred in different places. Counties with the largest home price appreciation between 2002 and 2006 had the largest declines in the share of purchase mortgages to subprime borrowers. We also document that the expansion in speculative mortgage products and underwriting fraud was not concentrated among subprime borrowers.
JEL classification: D14, D18, D53, G21, G38
Key words: mortgages, subprime, house prices, credit scores, housing boom