Americans clearly were robbed of hundreds of billions of dollars as part of the 2008 Great Recession. Several good books have already been published that cover its causes; recently released "Reckless Endangerment" concentrates more on the role of the government, and especially James Johnson, Fannie Mae CEO from 1991-1998.
The 1992 Federal Housing Enterprises Financial Safety and Soundness Act encouraged unsafe and unsound mortgage activities by assigning Fannie and Freddie a new affordable housing mission. The law specified that 30% of housing they financed must go to low/moderate income families, with another 30% to housing in inner cities. (Unclear whether mortgages to low/moderate inner city families count doubly.) Safety and soundness took a backseat to political goals and ideology. Down-payment requirements went first - the 1992 act encouraged buying mortgages with 5% or less down; the percent of Fannie-held loans with a loan-to-value ratio over 90% rose from 6% in 1992 to 19% in 1996. Fannie and Freddy's 'special mission' also provided political cover for growing/maintaining federal support (implicit Federal guarantee --> lower interest rates charged by lenders), and exemption from or weakening of some requirements - supposedly without these it could not meet the new housing goals and remain solvent.
Ratings agencies stopped demanding information on a borrower's debt/income ratio - getting the data delayed decision-making, and not requiring it anymore purportedly made the process 'more objective.' Moody's, S&P, etc. were no longer the cops on the beat they were thought to be.
Lobbying allowed Fannie and Freddie to help determine its new regulator - HUD, then led by Andrew Cuomo, was picked; it was seen as a weak and ineffectual regulator. Capital requirements were set at 2.5%, much lower than the 10% demanded of banks. HUD also 'streamlined' Fannie/Freddie regulations by allowing lenders to hire their own appraisers.
Johnson claimed Fannie saved American homebuyers between $7 - $14 billion in 1996, citing studies it helped fund. Intense lobbying and arm-twisting (eg. by Larry Summers, Robert Rubin) helped defeat Treasury's initial recommendation to sever ties with Freddie/Fannie; however, Johnson et al were not able to bury/change CBO analyses that concluded they had taken advantage of their federal connections to also fund political donations, lobbying, 'sweetheart' loans, and personally enrich management via much higher than warranted salaries - about $2 billion 'down the drain' in this supposedly holy cause.
James Johnson, however, was not the only player working to reduce regulation - ostensibly to better pursue social goals. Glass-Steagall was eviscerated, thanks to Sandy Weill at Citibank, bank capital requirements were reduced overall, asset-stripping (aka 'predatory' lending) was recognized for what it was - yet, allowed to continue, ratings agencies got away with dodging responsibility via claiming their conclusions were only 'opinions,' etc. Most galling, perhaps, was how threats to strip Fannie and Freddie of their special status was defeated by rating agencies' counter-threat to roil markets by downgrading F&F's debt (then $4 trillion, vs. $4.7 in Treasuries).
Meanwhile, Countrywide (a 2-man shop in 1969 L.A.) supplied 26% of Fannie's loans in 2004, espoused similar social benefit spiel, stepped up its own lobbying along the Fannie's lines, and not only eased requirements but also helped create deliberate falsifications. Johnson then brought KBHomes into the action -between KB, Countrywide, and Fannie, the destructive and illusionary pursuit of social-goals had become fully vertically-integrated. Alan Greenspan, reputed economic 'maestro,' continued his 'hear no evil, see no evil' pronouncements - based more on his Ayn Rand derived ideology than careful economic analysis.
'Repo' requirements for defective (eg. 'liar') loans were standard contract requirements that protected buyers in the event of early defaults. However, soon the volume of loans that could be forced back upon sellers overwhelmed the sellers' financial capabilities. Instead, buyers' willingness to acquire new mortgages sagged, and the entire process came to a halt - refinancings and new mortgages alike.
'Reckless Endangerment' ends with the author's vision for the future - a 'rerun,' due to Congress having failed to deal with the 'too big to fail' issue (one idea - increase the reserve requirements demanded of very large banks), followed by short current status summaries of the book's major protagonists. With the partial exception of Mozillo at Countrywide, none had been forced to return their ill-gotten gains and/or overly generous payments, none had even been charged with a crime, one had become governor of a major state (Cuomo - New York), and most were considerably better off for having contributed to the creation of America's 'Great Recession.'
So much for 'Honesty being its own best reward,' and 'Honesty is the best policy.' Meanwhile, back in Washington, proposed regulatory changes (banks issuing mortgages for sale to the securities market must either require a 20% down-payment or retain 5% of each loans value on their books) intended to reduce the threat of another mortgage meltdown ran into opposition from various 'poverty-pimp' groups - despite exempting loans backed by Fannie, Freddie, or the FHA (about 90% of the total).