The Community Reinvestment Act, revisited
I have blogged about the Community Reinvestment Act before. Here's another good article on the CRA's role in the 2008 housing crisis:
As Gretchen Morgenson of The New York Times and Joshua Rosner wrote in “Reckless Endangerment,” the Fannie-and-Freddie debacle shows what happens “when Washington decides, in its infinite wisdom, that every living breathing citizen should own a home.”
Beginning in 1992, the government began pushing for more allocation of credit to lower-income borrowers. To meet affordable-housing goals set by Congress, the two mortgage giants steadily lowered their credit standards and began buying subprime loans or no-document mortgages — those for which verification of key data like income was absent. Subprime originators seized the opportunity to reap profits with dubious mortgages while shifting the risk to Fannie and Freddie — and the Treasury.
Whenever concern was raised about the increased risk, reforms would be blocked by powerful Fannie-and-Freddie backers in Congress, like Massachusetts Rep. Barney Frank.
Source: The Kansas City Star.