excerpt from:  The Week (US)15 Sep 2017 Gwynn Guilford
Qz.com

We’ve been telling the history of the housing crash all wrong, said Gwynn Guilford. The conventional wisdom goes like this: “Poor people were reckless and stupid, and banks got greedy,” resulting in a global financial crisis. But the more researchers study the 2007 housing crash, the more we learn that’s not what happened.

A new working paper from the National Bureau of Economic Research argues that it was wealthy and middle-class house flippers who inflated the bubble to “cataclysmic proportions,” not borrowers with bad credit. Researchers found that the biggest growth in mortgage debt came from borrowers with credit scores in the middle to high range, and that most of them were buying second or third homes they hoped to quickly “flip” for a profit. “Recall that back then the mantra was that housing prices would keep rising forever.”

Meanwhile, mortgage debt belonging to the “subprime” borrowers who supposedly fueled the crisis “stayed virtually constant throughout the boom.” When the bubble finally popped, the affluent investors “accounted for a disproportionate share of defaults,” because they had less incentive to hold on to their extra houses. By comparison, “the share of single-mortgage borrowers who couldn’t keep up on their loan payments barely budged between 2005 and 2008.” Maybe it’s time to find a new name for the so-called subprime crisis.

Cliff Daniels
Realtor
Active Properties
Boulder Colorado
720 434 1418
cliff@actprop.com