The Community Reinvestment Act was a successful piece of legislation; however, the success was incomplete and came with significant costs that have increased over time as the structure of markets has evolved.

In 1994 the federal banking reulatory agencies proposed a new Community Reinvestment Act Regulations.  The proposal implements a 1993 Presidential request to "replace paperwork and uncertainty with greater performance, clarity, and objectivity."  

Government housing policies and the toxic mortgages they spawned were the sine qua non of the financial crisis.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default - those that were held or guaranteed by Fannie and Freddie, and those that had been securitized by Wall Street. This drove down housing prices and threw Fannie and Freddie into insolvency. 

It is government's fault for offering a housing finance program without making an effort to maintain underwriting standards.

In less than twenty-five years, government “affordable housing” and other housing policies have turned a healthy market into a financial ruin. Until Fannie and Freddie’s market dominance and the government’s role in the housing finance system are substantially reduced or eliminated, the United States will continue to have an inferior and unstable housing market.

So the stimulus--the so-called American Recovery and Reinvestment Act of 2009 or ARRA--is starting to wind down. What are the results?

To avoid the next financial crisis, we must understand what caused the one from which we are now slowly emerging, and take action to avoid the same mistake in the future.