One version is that Karl Rove was behind all of this - he told Bush that the best way to win the hearts of more low-income "minority" voters was to build up his "compassionate conservative" reputation by continuing to prop up Fannie and Freddie's subprime lending program.
This wasn't the worst part of Bush's Presidency, however. The worst came when the subprime chickens came home to roost, and Bush worked with Barney Frank to launch TARP and bail out investment firms who lost money in the debacle with taxpayer dollars.
Good points.
Some version of TARP was probably needed to prevent wholesale collapse of the banks that had gorged themselves on mis-rated mortgage paper. Fully one third of American banks collapsed 1930-33, it was a large reason for the severity of the Great Depression. No one wanted to risk a replay.
But the way that TARP was run, with very little oversight, turned it into an opportunity for some very bad actors to steal from taxpayers.