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American Dream of homeownership will die, unless…

The United States is at risk of becoming a nation of renters because of the "totally unnecessary" constraints that continue prevent lenders from giving out mortgages, former Wells Fargo chairman and CEO Richard Kovacevich told CNBC on Thursday.

Kovacevich blames two factors, starting with the Dodd-Frank financial overhaul act. "The litigation risk … says we should not make any loan that a borrower can't repay." He joked about that being a great idea, and then turned serious, saying: "I haven't figured out how to do that yet."

(Watch: This is the year 'Johnny' moves out: CFO)

The other fix needed, he said, is an easing of the standards that govern when banks must buy back faulty mortgages from government-run Fannie Mae and Freddie Mac, which own or guarantee the bulk of the U.S. home loans. That could help inspire lending.

In a "Squawk Box" interview, Kovacevich acknowledged that the new director of the Federal Housing Finance Agency, Mel Watt, is trying to do just that. But on Dodd-Frank, there's been no movement, he said.

"We have to make those two changes if you want to get this economy going because of housing," he said.

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—By CNBC's Matthew J. Belvedere

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.