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Rethinking How the Housing Crisis Happened

New research casts into doubt the central storyline of 2008—that this was ever a subprime crisis to begin with.

“In 2006, Robert and Julia Tanner borrowed $30,000 to put an enclosed patio on their home that they had somehow managed to live without for 25 years. Why don’t you ask them about that when they’re spitting in your face while you walk them to the curb? Why don’t you ask the bank what the hell they were thinking giving these people an adjustable rate mortgage? And then you can go to the government and ask them why they listed every other regulation … You, Tanners, the banks, Washington, every other homeowner and investor from here to China turned my life into evictions.”

So Florida businessman Rick Carver lectures a young protégé in “99 Homes,” a 2014 film that casts the late-2000s housing collapse as a morality play. Carver, loaded with unforgiving moral certitude by the actor Michael Shannon, orders the Tanners’ eviction while standing in an empty McMansion. He’s living there part time after evicting the tenants when their mortgage went underwater.

“99 Homes” is littered with ruin. Nobody—the poor, the Tanners, the McMansion dwellers—escapes, or escapes blame for, the crisis. Now research from MIT Sloan finance professor Antoinette Schoar finds this picture more true than is commonly accepted. In fact, Schoar argues, it was middle-class borrowers with good credit who drove the largest number of dollars in default.

“A lot of the narrative of the financial crisis has been that this [loan] origination process was broken and therefore a lot of marginal and unsustainable borrowers got access to funding,” Schoar said in September at the MIT Golub Center for Finance and Policy’s annual conference. “In our opinion, the facts don’t line up with this narrative … Calling this crisis a subprime crisis is a misnomer. In fact, it was a prime crisis.”

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