The worst form of cruelty is hurting people you intend to help. It happens when your heart is in the right place but your head is not. The promise of home ownership and affordable housing for all sounds like a great idea. The difficult part is how to achieve that ideal.
The Community Reinvestment Act (CRA) encourages banks to lend to subprime "risky" investors. The regulation was substantially revised in May 1995. Lending standards in general were loosened over the past decade, whether loans fell under the CRA or not is not the issue.
Fannie Mae and Freddie Mac buy loans from mortgage originators. By purchasing loans, the government backed agencies allow banks to clear mortgages off their books so they can lend more. Fannie Mae’s Capital Markets Sales Desk passes bundle mortgages, known as Mortgage Back Securities, to Wall Street investors. Some of these Mortgaged Back Securities contain subprime "risky" loans.
Clearly this method of putting people in homes does not work in the long run. You can't leverage people into houses and think everything will work out when one job loss, interest rate hike, illness, or economic downturn will put them out again. It's a cruel joke.
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