I agree. That was a part of the problem. But at the same time, those institutions that sold the instruments to Freddie/Fannie also had a legal obligation to certify the loans they were selling. Not only did they fail to do so, they simply lied to churn the loans.<quoted text>A hugh problem was the US Government became the buyer of choice in the secondary mortgage market thus eliminating the need for the seller of the first mortgage to do it's due diligence.
Back in the day when private investors or banks and building and loans were the primary buyers of secondary mortgages it was common practice for 20 percent to be put down on a house with the buyer having little to no debt as well as an income deemed sufficient to make monthly payments .
It was thought that a loan at no more then 80 percent debt to equity would allow the bank to recover at foreclosure.
Had the Government stayed out of social engineering through the mortgages of homes it is safe to say the housing crisis would never have happened to the degree it did.
The ltv rules were ignored in favor of profits. Well, now they've returned to that, getting away from their irresponsible criteria. Again, this is not the fault of the buyers but the sellers of these instruments.
When you look at GLB, the role WAS to reduce government's role. The problem was, it created the same issues that forced the creation of Glass-Stegall in the first place.
The housing crisis would have been avoided if banks and other lending institutions simply continued what they were doing prior to GLB.