From the September 14 Investor's Business Daily column:

The crisis had its roots in innocent-sounding changes made to the Community Redevelopment Act during the Clinton administration. Those changes not only encouraged banks to lend to credit-unworthy customers, they basically forced them to do so. Those that didn't meet CRA standards could be denied the right to expand their lending - or even to merge with another company.

The CRA used Fannie Mae and Freddie Mac, two government-sponsored enterprises that funded the Democrats' massive homeownership scheme, to boost homeownership among the poor.

Banks would be able to make loans to questionable borrowers, repackage the loans in bundles and resell them to Fannie and Freddie and investors around the globe. Fannie and Freddie got the green light to raise virtually unlimited amounts of money to buy up the iffy mortgages from the banks.

Any bank that didn't take part could find itself in big trouble.

As we wrote about this time last year: “With all the old rules out the window, Fannie and Freddie ... eventually controlled 90% of the secondary market for mortgages. Their total portfolio of loans topped $5.4 trillion - half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with - wink, wink - an 'implicit' government guarantee of the debts.”

The Fannie-Freddie explosion in mortgage lending intensified when the Fed cut interest rates to a then-record-low 1% after 9/11, fearing an economic meltdown. By 2007, subprime mortgage lending hit $1 trillion -- up 2,757% from 1994.

From 2000 to 2008, Republicans in Congress tried repeatedly to rein in Fannie and Freddie. But Democrats -- led by Rep. Barney Frank and Sen. Chris Dodd -- spurned effective reforms. Instead, we got crisis. And unbelievably, the system is still in place today.

Previously:

Myths and falsehoods about the purported link between affordable housing initiatives and the financial crisis