1. Democrats enacted and enforced Community Reinvestment Act making banks lend to people who shouldn’t get fund. Most were minorities.
2. Fannie Mae and Freddie Mac, the GSEs, lowered their underwriting and purchase standards to expand lending and make $$$. Congress and HUD forced Fannie and Freddie to purchase subprime ABS in order to meet HUD affordability goals. Which are CRA goals.
3. As with any business, Fannie and Freddie tried to compete with the private market subprime market by lowering their standards in order to increase market share.
4. Banks and other financial entities bought subprime ABS because of the attractive yields.
5. When the housing market slowed and turned down, defaults increased SO FAST that banks couldn’t unload the loans on someone else (e.g., foreign funds, banks and insurance companies).
So, even if we bail out the banks, all legislation is still in place. So, it will happen again!
Clear and concise facts. Thank you WD57!