...Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.
That's raising the risk very significantly.
...And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.
Despite the prima-facie risks here, things went reasonably well, because of "the bubble" in RE prices. When payments weren't made, the house sold for at least as much as the original price--so the lender came out OK, (and so did the borrower.)
Because of the very high returns and (apparently) little risk of principal, private investors got into the game, buying mortgage-backed securities (MBS).
By 2008, Mr. Pinto has shown, this market consisted of about 7.8 million subprime loans, somewhat less than one-third of the 27 million that were then outstanding.
Then things went to Hell. Bush & Co. bailed out Bear, but let Lehman fail; when that happened, the markets literally froze, and TARP was initiated.
Yup. It was Gummint--particularly Fan/Fred and FHA's purchase requirements, that touched off the mad stampede in housing. Yup. It was private investors who jumped in with both feet.