The Mortgages weblog notes a fiscally irresponsible proposal by the current administration to permit Federal insurance of mortgages granted with no money down.
The problem here is not so much with the reduced down payment, but with the insurance. The initial lender assumes no risk for the failure of the loan, and so has no incentive to ensure that the borrower is able to repay the debt. The Federal government, in its infinite wisdom, will pay the lender, either on default or by reducing the costs of transferring the loan. Which means that we will be paying the lender.