A new narrative of the subprime mortgage crisis

[Dreadnaught]

Your points are flawed. On the first one, their specific point is that prime mortgages - that are tied to credit score, not income - were as much or more of a problem than subprime mortgages - which had low credit scores. It's not a question of income directly.

Err, my point is that the definition of a "prime" mortgage is meaningless because credit scores were becoming unmoored from income. Trying to derive income or wealth data from credit scores in the twilight of the housing boom seems like they are missing a big part of this.

In other words, I hesitate to agree with the idea that prime mortgage borrowers were necessarily upper or even middle income.

[wiggin]

Err, my point is that the definition of a "prime" mortgage is meaningless because credit scores were becoming unmoored from income. Trying to derive income or wealth data from credit scores in the twilight of the housing boom seems like they are missing a big part of this.

In other words, I hesitate to agree with the idea that prime mortgage borrowers were necessarily upper or even middle income.

And my point is that credit scores were never supposed to be tied to income. No part of a credit score has anything to do with one's income, or one's wealth. It almost entirely has to do with one's history in repaying credit and the willingness of people to extend credit to you in the past. This last point is to some extent dependent on income (though for anyone like me who has been given a rather large credit line with essentially no questions asked, I question the strength of that connection), but it's a tenuous linkage at best.

A prime borrower is just someone who credit agencies think have a good history of repaying their debt. It doesn't mean you're wealthy - you can have shit credit but very high income or vice versa. Obviously there's some basic bar you need to pass in order to get a truly great credit score, but even a middling-to-decent credit score has always been possible for a conscientious person who only rose to modest income and wealth.

A more subtle point, though, is that provision of mortgages is not based solely on credit score (and maybe this is where you were going?). Mortgage offers are made based on credit history, yes, but also to a large extent on income, income history, and possibly wealth. Mortgage applications use a hell of a lot more than a credit score - in fact, the size of the mortgage and the decision on acceptance has almost nothing to do with credit scoring; it's the interest rate attached to the loan that's driven largely by credit scoring. Thus, one could make the reasonable argument that 'prime' borrowers is a large pool of people that might include those who are bad credit risks for reasons not tied to their credit history, but rather the size of the loan they were taking out scaled by their income and wealth. That is indeed a reasonable critique of the study, though it's only of peripheral importance. The authors don't argue that we only blame poor people for the crisis, but rather that we blame subprime borrowers who, while frequently poor(ish), were not identical with the low income mortgage-carrying population.

To determine whether your critique is correct, it would be necessary to segment the prime borrowers prior to the crisis by e.g. income (possibly by using size of mortgage as a proxy) and then determine whether the low-income but prime score demographic contributed in an outsized manner to the foreclosures/etc. It's possible this is true but I am not particularly certain that's the case.