Was this just this one state that didn’t allow proof of ID?
Amazing.
No, it was nationwide. FBI director Mueller went before Congress and pleaded with them not to allow the IRS to Individual Tax Identification Numbers to illegals. With an ITIN, bankers could go ahead and make loads. Trouble is, anyone can get one or more ITINs without ID other than a signed request form. And ITINs could be used by terrorists to get drivers' licenses. That explains the FBIs concerns.
The deeper problem, of course, is what partially caused the current financial crisis - home loans to folks who couldn't afford them and had no incentive not to walk away from the homes they couldn't afford.