Utilizing new panel micro data on the ownership sequences of all types of borrowers from 1997-2012leads to a reinterpretation of the U.S. foreclosure crisis as more of a prime, rather than a subprime, borrower issue. Moreover, traditional mortgage default factors associated with the economic cycle, such as negative equity, completely account for the foreclosure propensity of prime borrowers relative to all-cash owners, and for three-quarters of the analogous subprime gap. Housing traits, race, initial income, and speculators did not play a meaningful role, and initial leverage only accounts for a small variation in outcomes of prime and subprime borrowers.

Most economic analysis of the recent American housing market bust and the subsequent default and foreclosure crises focuses on the role of the subprime mortgage sector.1 Roughly three-quarters of the papers on the crisis reviewed in the next section use data only from the subprime sector and typically include outcomes from no later than 2008. For example, Mian & Sufi (2009) use mortgage defaults aggregated at the zip code level from 2005 to 2007 to conclude that a “salient feature of the mortgage default crisis is that it is concentrated in subprime ZIP codes throughout the country.” However, subprime loans comprise a relatively small share of the complete housing market–about 15% in our data and never more than 21% in a given year. In addition, we document that most foreclosures in the United States occurred after 2008. These two issues raise questions about the representativeness of results based on selected subprime samples.