Credit growth and the financial crisis: A new narrative

Abstract

Using a nationally representative panel of credit reports, we show that the 2001–2006 credit boom and the 2007–2009 rise in mortgage defaults were concentrated among prime borrowers. Life cycle effects and mortgage investor activity are primary factors behind the evolution of debt and default in this period. These results hold across geographical regions, suggesting other factors, such as demographics, may account for the positive correlation between the concentration of subprime borrowers, the rise in debt and severity of the recession. Our findings provide a new narrative that challenges the role of subprime credit in the housing boom and bust.