Who Are the Villains of the Mortgage Mess?

You invoked on Monday the widely circulated myth that our national foreclosure crisis and "Wall Street meltdown" stem from "government intervention" that promotes affordable home ownership. Like most urban legends, this one falls apart under close examination. The real story is just the opposite — deregulation and non-intervention pulled us into the abyss.

Throughout the 1990s, federally regulated banks slowly expanded lending to low- and moderate-income families, partly due to more serious enforcement of the Community Reinvestment Act of 1977. That law simply requires that banks taking deposits from low- to moderate-income communities actually try to meet the credit needs of residents in those areas. Fannie Mae and Freddie Mac backed more loans to low- to moderate-income borrowers who could be responsible homeowners if allowed somewhat more flexible credit scoring and terms. The result? A strong increase in home ownership rates by the late 1990s, especially among low- to moderate-income and minority borrowers.

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