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Let me go the opposite direction. What if the Fed did NOT insure (read: bailout) Freddie and Fannie, which was the final destination for these high risk loans? What if the Fed did not protect these companies from making their high risk loans to people who can't afford the homes? What if the banks had to take the risks of these loans on their own and sink or swim with the results?
The answer:
These loans would not exist. We would immediately return to conservative lending practices: 20% down and you must be a qualified buyer. Housing prices would not have become artificially inflated by high demand due to an influx of money and (high risk) buyers into the market. Far less foreclosures. No housing bubble. In short, it was the involvement of the Fed, fueled by a political agenda in Congress, who allowed these loans to exist in the first place. If the Fed had not meddled, the banks would have never made these loans and the collapse would not have occurred because the "housing bubble" would not have existed.
So, there is a strong argument that the current "regulation" is what caused the problem. Why add more regulation? Why not just eliminate the parachute (foreseeable federal bailouts) from the equation and then the banks won't behave so irresponsibly?
The only downside is that more people will rent and less will own. However, if you take out a 100%, interest only loan, you are only renting anyway.
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Gives a man a halo, does mead.
"Here lies The_Jazz: Killed by an ambitious, sparkly, pink butterfly."
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