The basis for the argument is that in 1992, Congress that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers (I believe through a 20 year old law called the Community Reinvestment Act). Operating under that requirement, Fannie Mae, in particular, was more aggressive and creative in stimulating minority gains. It aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That made banks willing to lend to lower-income families they once might have rejected.

Since HUD became their regulator in 1992, Fannie and Freddie each year are supposed to buy a portion of affordable mortgages made to underserved borrowers. Every four years, HUD reviews the goals to adapt to market changes.

In 1995, President Bill Clintons HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.

Banks typically back prime loans with customers deposits. But subprime lenders often rely on money from Wall Street investors. who buy packages of loans as investments called mortgage-backed securities.

In 2000, as HUD revisited its affordable-housing goals, the housing market had shifted. With escalating home prices, subprime loans were more popular. Consumer advocates warned that lenders were trapping borrowers with low teaser interest rates and ignoring borrowers qualifications.

HUD restricted Freddie and Fannie, saying it would not credit them for loans they purchased that had abusively high costs or that were granted without regard to the borrowers ability to repay. Freddie and Fannie adopted policies not to buy some high-cost loans.

That year, Freddie bought $18.6 billion in subprime loans; Fannie did not disclose its number.

In 2001, HUD researchers warned of high foreclosure rates among subprime loans.

Given the very high concentration of these loans in low-income and African American neighborhoods, the growth in subprime lending and resulting very high levels of foreclosure is a real cause for concern, an agency report said.

But by 2004, when HUD next revised the goals, Freddie and Fannies purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

That year, President Bushs HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and must do more.

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals. Because Fannie and Freddie were buying mortgage-backed securities rather than the actual subprime loans, their involvement came too late to require stiffer standards from lenders.

Neither they nor HUD had the staff or ability to look through all those loans to determine whether they met the lending guidelines of Fannie and Freddie even though their money was used to capitalize them.

It was a mistake to credit Fannie and Freddie for investing in subprime securities toward their affordable housing goals. Thats on the Clinton administration in a general, theoretical way. But it was under Bush when the practice began to threaten the economy in a very real way and it was allowed to continue and even encouraged. It was also a mistake to expand the program after 2000 and that is all on Bushs HUD crew. However, there was a large push among individual, mostly Democratic members of Congress in 2004, the last time the HUD strategies were revisited (prior to this year) but to blame them (or the CBC) for the problems when they had so little power seems a bit of a stretch.