Quasi-government housing giants Fannie Mae and Freddie Mac announced they are loosening requirements for new home owners to secure tax-payer backed loans.

A new program would only require a 3-percent-down payment. It will encourage buyers, but is this a return to the irresponsible lending practices that led to the housing bubble of just a few years ago?

In an effort to spur first-time home buying which has been retarded during the economic recovery, Fannie Mae and Freddie Mac will allow buyers to purchase a primary residence at a fixed rate but paying down as little as 3 percent of the home price. Customers will have to provide evidence of income and credit history and each of the agencies has set requirements for credit counseling, but after that homebuyers will be free and clear to nab the keys to their first home.

This effort is meant to kickstart home ownership given the high rentership rates as potential buyers face challengers saving enough as incomes have remained stagnant.

L.A. Times reports:

The loans, unveiled Monday, reverse a trend of tighter lending standards by the government-sponsored mortgage giants since their taxpayer-financed bailouts. The programs allow only fixed-rate loans on single-family homes used as a primary residence.

The programs could give a boost to first-time home buyers, who have largely stayed on the sidelines of the housing market rebound. First-time buyers this year made up the smallest share of the housing market in 27 years, according to the National Assn. of Realtors.

A Federal Reserve survey released in August found that 45% of renters delayed buying a home because they couldn't afford a down payment.

Fannie and Freddie purchase about half of all new home loans from banks and package them into securities for investors. But lenders still have to make the loans, and some remain skeptical of any 3% down-payment program.

Since 2011, Freddie Mac has required at least a 5% down payment on loans it guarantees.

Fannie Mae, starting late last year, required a 5% down payment for most mortgages it backed, but still offered to back loans with a 3% down payment made through some state housing finance agencies.

Fannie Mae and Freddie Mac were seized by the government in 2008 as they teetered near bankruptcy because of bad mortgages they backed.

This program is controversial though as it reminds us of the days when credit for homeownership was easy and restrictions were loosened too much that little or no-down payment loans permitted unqualified consumers to purchase far more house than they could afford. In many of those cases, buyers secured flexible interest rates that eventually ballooned out of control, which is different in this case.

Critics from lawmakers on Capitol Hill to lenders lend their concern over this program according to Fox Business:

The shift back toward low down payments has drawn intense criticism from an array of legislators and lending and housing experts who say the plan revives the same lax lending practices that led to the 2008 financial crisis.

Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, said after the plan was announced earlier this year that lowering down payment standards for government-backed mortgages is “an invitation by government for industry to return to slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy.”

In the aftermath of the 2008 financial crisis, which stemmed directly from the collapse of the U.S. housing market as millions of Americans defaulted on their home loans, Fannie Mae and Freddie Mac were accused of easing credit both in an effort to promote loans under pressure from both Democratic and Republican administrations to increase home ownership, as well as to boost their own profits.

Many private lenders were accused of relaxing their lending standards for the same reasons.

Since the housing bubble burst, sending the U.S. into a deep recession, lenders have been enforcing far tighter credit standards, making it difficult for many first-time home buyers to scrape together a down payment and qualify for a mortgage.

Consequently, despite historically low interest rates that have brought mortgage rates to their lowest levels in decades, many consumers haven’t been able to get approved for a mortgage and the U.S. housing market has struggled to gain traction as the economic recovery slowly moves forward.

Fannie and Freddie found themselves on the verge of collapse at the height of the financial crisis and were taken over by the government in 2008 and ultimately kept afloat through a $185 billion bailout.

This almost feels like déjà vu. If homeownership requirements are eased and too many unqualified buyers secure more than they can afford–especially in light of an economic recovery that has left behind jobs–we are setting them up for failure. The cumulative impact will be that Fannie and Freddie will fall back into unprofitable status and perhaps come close to collapse once again.

That may sound like the boy crying wolf but it wasn't too long ago that we were riding the wave of irresponsible homeownership toward collapse.

What this is a market distortion. Ancillary effects will be to drive competition in the home loan business. Private lenders will be forced to cut rates to compete.

Homeownership is wonderful, especially if it's your first home. We want to young people, couples, and older people who've never had a place to call their own to pursue what is a great part of the American Dream. Yet it must be done responsibly though to avoid treacherous unintended consequences.