From what I've heard about the market, the banks could indeed stop dragging their feet about issuing loans to people with even slightly blemished credit. Basically, they over-reacted and while people with great credit can get really low interest rate loans, they simply aren't available for those with muddied credit that still have the ability to pay.
The trick is to keep to the fundamentals -
Can they realistically afford the payments?
Do they have a down payment?
Is the home worth it?
So called 'NINJA' loans - No Income, Job, or Assets, need to stay gone. Mortgage buyers need to keep on the first level lender/sellers and make sure they aren't issuing then selling loans fraudulently.
Ultimately though, it should the banks that make that decision, not the politicians.