Report: House Flippers, Not Subprime Loans, Were Responsible for the Housing Crash

"Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong," writes Gwynn Guilford. "The latest comes in a new NBER working paper [pdf] 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 dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economists—Stefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—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 distribution—and that these borrowers accounted for a disproportionate share of defaults," according to Guilford.

(Note: this article relying on evidence supplied by anonymous data from Equifax was published several days before the news broke about hackers gaining access Equifax's records of confidential information pertaining to about 143 million Americans.)

According to this analysis, at least, the borrowing of those with low credit scores—the 'subprime' borrowers who supposedly caused the crisis—"stayed virtually constant throughout the boom."  

As Guilford hinted at the top of the article, there is another study by Antoinette Schoar, a finance professor at MIT Sloan, that also backs the emerging narrative about how wealthier market players, with better credit, drove the rise in delinquencies in the market at the time of the crash.