Mortgage Bill fostering Malinvestments in Housing

Almost 10 years ago on October 20th, 1998 the NY Times reported that a bill was passed by both houses in Congress. This bill which amounted to $93 billions allowed to Freddie Mac to "insure high-risk mortgages in new and different ways..." The aim of this bill was to "save consumers money by reducing insurance premiums." The stock prices of some private insurance companies went down after these news.

Bills like this are the ones that subsidize risk-taking, and thus encouraging individuals to buy houses that they would have not buy otherwise. Problems of 'moral hazard' and 'adverse selection' stem from this kind of regulations. It is, of course, necessary a more thorough analysis of the different regulations in the banking and mortgage sectors (even zoning) before to make a definitive conclusion about the causes of the current crisis. But the seed to foster mal-investments was there.