(B) Fannie Mae and Freddie Mac were evidently established to buy existing loans from banks in the mistaken notion that banks need existing money, deposits or reserves to make loans. That may have been the biggest legislative blunder of all time. Fannie Mae and Freddie Mac have no useful purpose -- banks do not need existing money to issue new loans. They can create the money they need when they have found a reliable borrower(s).
(C) The bank's right to create new money arises somewhat indirectly through the Constitution that specifically and clearly gave that right and obligation to Congress who then wimped out and transferred that hot potato to the Fed. (illegally in my opinion) who then gave that right to their member banks. As a result -- banks can create any amount of money through loans.
(D) As far as I can find, there are no real restrictions on how much banks can lend -- except of course (1) the ability of the borrower to pay the loan back (2) adequate collateral that can be seized if the loan is not paid back (3) a legal system that will enforce the terms of the loan contract (4) rules that prohibit banks from lending more than a certain amount of their total loans to any one borrower or related group of borrowers and (5) rules that prohibit banks from lending more than a certain amount of money to employees or owners of the bank and businesses or corporations controlled by the bank.
(E) There should be specific and detailed laws (1) that require all banks to rigorously perform "due diligence" when considering making a specific loan to a specific prospective borrower. Those rules should be passed by Congress in formal legislation and not be allowed to be set (or hidden) by various agencies in their operational rules and regulations.
(F) Financing -- Currently, Interest rates on mortgage loans for buyers of a single family home are a large part of the cost of the home. That can be dramatically changed.
(1) home ownership is desirable (I think there are a few pieces of formal legislation and presidential declarations to that effect),
(2) the money for mortgages can legitimately be created out of thin-air in accordance with existing law and practice,
(3) It takes very little effort by banks to cash mortgage checks,
(4) mortgage loans are the safest of all loans If due diligence is done by the lender with regard to only two easily determinable things --
(a) the market value of the home and
(b) the ability of the buyer to repay the loan --
the interest on new mortgage loans can easily be reduced to 1 or 2 %.
That will obviously revolutionize the American way of life. Why don't we get started tomorrow, 11/2/09?
The only group of people that will suffer are those banks that are now holding mortgages above 2%.
Why should they be protected by from legitimate sensible competition?
If we would energetically get started now, I believe we could solve all our economy's problems by the first of next year and start a wealth boom that would expand to cover the entire world within five years.