---

Subprime Commission
...Today Wallison isn't getting the credit he deserves because he doesn't toe the conventional line regarding the root causes of the debacle. He doesn't blame unscrupulous mortgage brokers. Or greedy investment bankers. Or incompetent rating agencies. Or foolish investors. Or whiz-kid investors of complex derivatives.

Instead, he blames Washington for encouraging all of them to do what they did. Government policy, he says, manipulated "the credit system to force more lending in support of affordable housing."

This crisis wasn't a failure of capitalism, Wallison argues. It was a failure of government.

"The crisis would not have become so extensive and intractable," he recently said, "had the U.S. government not created the necessary conditions for a housing boom by directing investments into the housing sector, requiring banks to make mortgage loans they otherwise would never have made, requiring Fannie Mae and Freddie Mac to purchase the secondary mortgage market loans they would never otherwise have bought and encouraging underwriting standards for housing that were lower than for any other area of the economy."

An early critic of the Community Reinvestment Act, a banking rule that socializes mortgages, Wallison argues too much regulation caused the mortgage meltdown.

As we've detailed on these pages, President Clinton strengthened the CRA (by requiring, for the first time, numerical quotas for affirmative lending) and used it to pressure banks into making risky loans and to adopt "flexible" lending standards.

The same pressure was brought to bear on Fannie and Freddie. Those agencies adapted their underwriting standards so they could accept the loans made under the CRA and other loans that did not conform to what had been considered sound lending practices.

Outrageously, Clinton's HUD required Fannie and Freddie to underwrite fully half of their mortgages for lower-income, higher-risk borrowers — a quota that remained in effect several years into the Bush administration....