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Scapegoating poor people for the housing crash is dumb. This study shows just how dumb.

An auction sign in front of a foreclosed house on October 29, 2012 in Warren, Ohio.
An auction sign in front of a foreclosed house on October 29, 2012 in Warren, Ohio.
John Moore/Getty Images
Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

Ever since the subprime mortgage crisis broke in 2008, certain corners have clung to a narrative that centers not on reckless risk-taking by big banks or poor regulatory oversight but on, well, poor people, and the policies meant to help them afford homes.

According to this theory, policies meant to improve access to credit among low-income people and disadvantaged minorities, most notably the Community Reinvestment Act of 1977 (CRA), encouraged banks to make risky loans, which eventually fell through, causing the crash. While many conservatives, like former Fed governor and Bush administration economist Randall Kroszner, rejected this view, others — including Charles Krauthammer, former Rep. Ron Paul (R-TX), former Gov. Mike Huckabee (R-AR), former Rep. Michele Bachmann (R-MN), and even ex-New York mayor Michael Bloomberg — have embraced it.

This theory has never had much empirical support behind it (just the opposite, really). But a new paper by Duke's Manuel Adelino, MIT's Antoinette Schoar, and Dartmouth's Felipe Severino shreds it.

The study looks at who was actually taking out mortgages in the run-up to the crisis, and who defaulted once it hit. Their conclusion? The poor didn't, in fact, start taking out more and bigger mortgages than everybody else. Borrowing rose, sure, but it rose for everybody. We all bought into the idea that housing prices would keep going up, and that faith doomed us — not loans made to the poor.

Here, for example, is their breakdown of mortgage debt by the income level of the borrower for loans starting in 2002 through 2006:

(Adelino, Schoar, and Severino)

The poorest households made up 5 percent of new mortgage debt in 2002, and that figure didn't grow at all between then and 2006. If an explosion in unsustainable mortgages for poor households was behind the crisis, then you would expect to see a huge shift towards those kinds of mortgages. But the data reveals nothing of the kind.

Another way to see this is by looking at debt-to-income ratios:

(Adelino, Schoar, and Severino)

It's normal for poorer households to be deeper in debt on their homes; they're less likely to be able to afford large down payments. But mortgage debt relative to income didn't change much for any income group between 2002 and 2006. Again, if the story of poor households racking up more and more unsustainable debt were true, you'd expect to see the debt-to-income ratios of the bottom few deciles shooting up. But that didn't happen. It grew only a tiny bit for the poorest households, and fell for everybody else.

But the most revealing chart in the paper might be the one showing mortgage delinquencies within three years of mortgage origination broken down by income. Keep in mind that delinquencies for mortgages starting in 2005 and 2006 could have occurred in 2008 and 2009, when the crisis hit. The dataset here wouldn't show financial crisis delinquencies for mortgages starting before that. (Note: the dataset the authors use for this doesn't have income numbers for individual borrowers, so the authors used average income by zip code.)

(Adelino, Schoar, and Severino)

As the first chart indicated, there wasn't a lot of change in which income groups were getting mortgages from 2002 to 2006. But this chart shows that the dollar value of delinquencies for 2005-2006 mortgages was concentrated more heavily than ever among the richest borrowers. "Of course," the authors write, "the total dollar value of mortgages that are delinquent went up dramatically for mortgages originated in 2006 relative to those originated in 2002, but clearly this is not driven primarily by low income borrowers."

Scapegoating the poor for the financial crisis was always a stretch. But especially given the data here, it's long past time we put that dubious theory to bed.

Thanks to Tyler Cowen for the pointer.

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