Why housing [really] collapsed

For the last several years, I have blamed banks for the debacle in the housing market. Yes, I have cited the ill-advised Community Reinvestment Act (enacted by Congress in 1977 (12 U.S.C. 2901)) and the Federal Bank of Boston for "encouraging" banks to lend below FICO 660 and later 620. But if you read Conard, a whole new picture emerges of government leading us directly to the collapse. More government intervention leading to disaster. We are on course for more of that with green fuels, health care and a host of other government interventions.

 
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In 1995, the Clinton administration released its National Home ownership Strategy13 with its objective to “lift America’s home ownership rate to an all-time high by the end of the century.” It recommended that “lending institutions, secondary market investors [principally Fannie Mae and Freddie Mac, the dominant lenders in the secondary market], and [others]  .  .  . should work collaboratively to reduce home buyer down payment requirements.” It also called for the increased use of “flexible underwriting criteria,” which could be achieved with “liberalized affordable housing underwriting criteria established by  .  .  . Fannie Mae and Freddie Mac,” using “financing strategies, fueled by the creativity and resources of the private and public sectors to help.”


Treasury Emil Henry, “This hands-off approach represented an abdication of Treasury’s essential oversight powers  .  .  . and [the] strategic drift of the GSEs (Government sponsored enterprise, created by Congress) began soon thereafter.” 15 The GSEs used their newfound authority to ramp up borrowing, which they used to fund a $ 1.6 trillion investment in mortgages for their own accounts (see Figure 6-3). The primary purpose for this investment was to earn profits from the difference in the GSEs’ low-cost government-guaranteed financing and the higher rate earned on mortgages. Make no mistake; this was government-financed intervention into mortgage markets on a massive scale.


This data shows that between 2001 and 2007,* Fannie and Freddie bought about two-thirds of the non-conforming loans* and almost half of all the low-quality loans with FICO credit scores less than 660 and identified down payments of less than 20 percent* in these pools. They bought close to 60 percent of the toxic loans with FICO scores less than 620 and down payments of less than 10 percent. The data also shows that the GSEs used unconventional definitions of subprime and Alt-A loans to disguise the extent of their purchase from regulators and the markets, and that the GSEs were steady buyers of subprime from beginning to end. In 2006, for example, at the peak of the market, they bought two-thirds of all the loans with down payments of less than 10 percent, a third of all the loans with FICO scores less than 620, and 45 percent of all the loans with FICO scores less than 620 and down payments of less than 10 percent. Even if you halve these shares by assuming all loans held by banks were subprime (despite the fact that critics contend banks held the most creditworthy loans and sold or syndicated the rest), this still represents government intervention on a massive scale.

Emphasis added

Conard, Edward (2012-05-07). Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong (Kindle Locations 2706-2712). Penguin Group. Kindle Edition.