What caused the housing foreclosure crisis? In other words, what caused the housing bubble?

Years ago subprime lending imploded and most economists and financial managers called it a problem and bad omen for the future. "Subprime Mortgages" are risky from the start and are issued to those who have a lower income than would normally be able to afford to buy a house and they were also issued to bad-credit borrowers.

Google this to see where they came from: "Community Reinvestment Act" (CRA) This act _required_ banks and thrifts to offer credit throughout their entire market area. This was to do away with "redlining." See Wikipedia.

Who passed this act? Jimmy Carter and a bunch of Democrats passed it. It gave incentives to help low-income borrowers buy a house.

This helped a little until 1995. That was when Bill Clinton made changes to it. The Democrats added a lot of new provisions to it. These revisions allowed the securing of CRA loans containing subprime mortgages. This resulted in an increase in home loans due to the fact that any lender who did not mitigate loan risk could use this new subprime authorization.

This forced banks to issue about a $trillion in new SUBPRIME mortgages. The act _requires_ that deposit-taking financial institutions offer equal access to lending. Equal access to people who couldn't afford it in the first place. In other words, it was against the nation's banks' interests and created subprime mortgage securities. Bear Stearns was the first.

Fannie Mae added to it by purchasing $2 billion of "MyCommunityMortgage" loans. Lenders were now offering products to low and moderate income borrowers. People who couldn't afford to buy a house. Subprime mortgages started growing quickly. Fannie Mae subprime purchases jumped remarkably from 1997 to 1998 and housing prices immediately started to rise. Fannie Mae is a government-sponsored enterprise. Fannie Mae guarantees mortgages and then sells them to investors, banks, etc. The more mortgages, the more money they make.

So, they moved down the income ladder for more mortgages. Remember, the banks HAD to issue sub-prime mortgages because of the act. The alternative was paying big penalties.

In 2004 a huge 92 percent of Fannie Mae sub-prime loans were variable rate. This boggles the mind NOW. Then, it was just something they had no reasonable choice but to do. In 2005 it was 91 percent. They guaranteed the most reckless loans for the most vulnerable communities because of the Community Reinvestment Act. Fannie said make the loans and we'll guarantee them.

Both home ownership and housing prices continued to rise. Then, the big problem appeared: Interest rates rose. Now you see where variable rate suddenly doesn't look so peachy, right? Mortgage payments literally exploded. Gas prices rose. Income was squeezed and especially lower incomes. Some borrowers stopped paying and banks stopped lending. From 2006 to 2007 new mortgages dropped about 50 percent. The sub-prime market collapsed.

Foreclosures started piling up faster than the banks could process them. The problem is that there were no buyers for the foreclosed homes. Home prices started falling. More and more borrowers stopped making payments and Fannie's guarantees became worthless seemingly overnight because they kept overstating their assets. Banks started collapsing due to worthless government-sponsored securities issued by Fannie.

And here we are. The expansion of the Community Reinvestment Act in 1995 is where the blame falls.

Before CRA expansion home prices increased with inflation. After CRA home prices separated from inflation rates. CRA cause home prices to rise too fast and a big wedge appeared between inflation and home prices. This violated economic fundamentals and was strictly the result of regulation-mandated credit. This caused reckless speculation, a "bubble." This didn't have to happen. Someone tried to stop it.

In 2003 you'll never guess who tried. George Bush. He wanted to oversee Freddie and Fannie and the Democrats stopped it.

From the New York Times Sept 11, 2003: "Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families." WHAT???

Barney Frank, a Massachusetts Democrat said, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." He said this while the very thing he was defending was crumbling all around him.

Melvin Watt (D-NC) jumped in with more of the same.

The only problem with what they were saying was the mere fact that housing was NO LONGER affordable. Remember, home prices had ALREADY skyrocketed. There was no affordable housing and the time bomb ticked on.

Someone else tried to stop it in 2005. You'll never guess who!

John McCain warned of an imminent mortgage collapse in simple english. He co-sponsored a bill, "The Housing Enterprise Regulatory Act of 2005." Proposed and co-sponsored entirely by Republicans. Google: "www.govtrack.us Bill S-190"

It was a bill that would regulate Freddie and Fannie. The Democrats blocked it. It came back again in 2007. Blocked again. Fannie had friends in the Senate like Chris Dodd who was a sweetheart loan recipient.

Senator Barak Obama also covered Fannie's ass. You'll never guess who Obama chose to select his VP: Jim Johnson, another sweetheart loan recipient. From 1985-1990 he was the Managing Director of Lehman Brothers. Remember them? From 1991-1998 he was CEO of Fannie Mae. You know, when CRA was expanded. Jim Johnson was corrupt. He improperly deferred $200 million in expenses and Fannie under-reported Johnson's compensation originally reported as $6-7 million he actually received $21 million and gave Obama the max contrib of $4,600. Then he was a wealthy private banker and was on the board of Goldman Sachs which gave another $700,000 to Obama and raised another $500,000 through "bundling." Then Johnson was forced to quit because of favoritism he may have received from Countrywide Financial. This company has lots of ties to the sub-prime crisis. He had been found out. Google it and also visit opensecrets.org.

There so much more. Like Franklin Raines and the fact that Barak Obama got more money from Fannie in 3 years than John Kerry has in 20.