Back before the government decided it would be a good thing to insert themselves into the housing market and recapitalize the banks by promising (provided they followed the directives of the general government) to buy up the mortgage loans the banks had made so that they would have the capital necessary to lend it to someone else to purchase a home, which the government would then again purchase so that the funds were available for the next loan, you didn't have 30 year mortgages that you would have to worry about still having 10, or 20 years worth of payments left to make if you lost your job. The 30 year mortgage came about so that more people could purchase a home they really couldn't afford on what they made, said mortgage to be purchased by the federally chartered GSEs, which were really private corporations that the federal government promised to privatize their profits and socialize their losses should they occur. What better way to leverage the actual wealth of the nation 100x over, and create and inflate a massive financial bubble to give the appearance of wealth while actually taxing the savings of the populace into oblivion through the inflation that is the inevitable result of "priming the pump" in true Keynesian fashion.
Did the banks go along with the scheme? You bet they did, the government promised to privatize their gains and protect them from any losses if they did it the general government's way. Why risk your money being lost when you can have a virtually ironclad guarantee that you won't lose a penny of it?
Fannie and Freddie had half the capitalization that other, private, financial institutions were required to carry. They had access to discounted loans direct from the Fed (provided, of course, that they would purchase X% of their total volume in loans made to lower income brackets in accordance with the desires of the elected officials who were seeking to purchase the favor of those who vote for their living). The general government made an implicit guarantee that the garbage they were purchasing, repackaging and selling as mortgage backed securities were as secure an investment as their own Treasury Notes were - at a better overall profit margin, thus providing incentive to purchase the garbage from the GSEs because there was no way they would lose their investment, it was implicitly guaranteed by the full faith and credit of the federal government of the United States of America - by which it is meant the fruits of the labors of the citizens of the States that are levied by federal taxation.
