The banks didn't care. They were just acting as mortgage brokers and all that paper was sold off as safe, government backed, mortgage backed securities to pension funds and 401-K funds investing in "safe" government backed paper. This was not deregulation. It was the government telling quasi-government organizations Fannie Mae and Freddie Mac to relax lending criteria. It's not "deregulation" when the Federal government is setting the terms and backing the securities.
If you hadn't been allowed to borrow more than 28% of your gross income in mortgage/taxes/insurance, you wouldn't have the problem you have today, would you? There wouldn't have been a housing bubble. You would have paid far less for a house you could have afforded.