- [Narrator] It's been 10 years
since the Great Recession,
which is commonly blamed
on banks extending
too many loans to low income
borrowers with high risk
of default, now known as the
subprime mortgage crisis.
But Manuel Adelino, a finance
professor at Duke University's
Fuqua School of Business,
found that narrative
doesn't fit the facts.
Adelino and his co-authors
reviewed nationwide income,
home sales, and mortgage data from
the years before and during
the financial crisis.
First, they found there
wasn't an explosion
of credit offered to
lower income borrowers.
Credit expanded across the board,
most drastically in
areas where house prices
were rising the most.
In fact, they found home
ownership rates among
the poorest 20% fell during the boom,
because those buyers were
being priced out of the market.
Nor did they find the crisis was caused
by defaults among subprime borrowers.
Instead, Adelino found
the numerous bank failures
and subsequent recession were caused
by middle and high income borrowers,
including speculators buying
up houses to sell for profit,
who began defaulting
at unprecedented rates.
The researchers found that
because lower income borrowers
were buying less expensive
houses and in smaller numbers,
there simply weren't enough of them
to topple banks and cause the
economy's subsequent collapse.
Unfortunately, however,
regulators bought into
the subprime narrative
and reacted by making
it harder for lower income
Americans to get credit,
just as house prices were low.
As a result, home ownership
among that population
has collapsed since the crisis.
This has not helped anyone
get on the property ladder
and the researchers found it has not added
any stability to the
banking system either.
