...if Freddie and Fannie had stuck to low-risk lending they would today not be needing any government bailout.

It strikes me as logical that "low risk lending" is impossible without the presence of standards to evaluate risk. Otherwise, how could a risk be called low?

But in any case, they threw the standards out. As to the reasons why, Stan Liebowitz suggests that groups like ACORN played a role:

Perhaps the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards--done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.

At the crisis' core are loans that were made with virtually nonexistent underwriting standards--no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment.

In the 1980s, groups such as the activists at ACORN began pushing charges of "redlining"--claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.

bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.

Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.

Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with "100 percent financing . . . no credit scores . . . undocumented income . . . even if you don't report it on your tax returns." Credit counseling is required, of course.

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

I'm not saying that everything that happened is a direct result of lowering standards, but it's hard not to see the lowering of standards as a major cause.

And I think I'm being charitable by not saying "eliminating" standards.

What did they expect would happen?

Might as well eliminate grades in school.