Sometimes I forget that we now live in a world of Tooth Fairy Credit.

Only hours after my March 9th column appeared, advising an aspirant first-time homebuyer, my e-mail box was filled with contrary messages from lenders. I had done the reader a disservice and discouraged him as a homebuyer, they said, because a 5 percent down payment was no longer necessary.

In fact, I knew that.   I have always felt that I should write about traditional financing, the kind that requires 5 to 20 percent down payments, because off-path financings can be problematic.

There has, however, been a fundamental change--- the FHA has new program that will allow first time home purchases with virtually no down payment or credit.

Listen to what mortgage broker Jane Stathas at Allied Mortgage in Dallas wrote about the program.

"…I am a loan officer and do not agree at all with your response to "SM", the 27 year old who makes 25K and would like to purchase a home.  

"First of all, this person is a perfect candidate for an FHA loan through Loan Prospector.   This new computerized underwriting system takes ratios as high as 54/54, unpaid collections, open judgments, late pays, not much reestablished credit.

"Soon FHA will put the B paper lenders out of business, in my opinion.   You would not believe what is getting approved under this new method of underwriting.   What you might have wanted to advise this person was to call a lender (such as myself), who specializes in FHA and first time buyers and credit challenges, to let them get a credit report pulled and qualify that person.   Without seeing the credit report, reserves, etc. this person might actually qualify for as high as $1000 per month with the extended ratio guidelines.

" I feel you have blown the wind out of this person's sails and I can bet this person is discouraged…     I think you owe this person another response.   Get the wet noodle out Mr. Burns!"

It is possible, today, to buy a house with virtually no down payment. In some cases you can borrow more than the house is actually worth.

Sadly, this is not good news for you and me as consumers. Our new problem is that lenders are sloppy about credit risk. They are entirely willing to take risks that may not be in our best interest because we will suffer more, for a longer time, if anything goes wrong.

Don't get me wrong.

Becoming a homeowner is a good thing.

But that doesn't mean we should be as eager and dull-witted about borrowing as some of our lenders are being about lending. Where the home mortgage lender was once a figure of conservatism and your banker was once a touchstone of moderation, we now live in an economy where our personal ability to pay no longer matters because all obligations will be assumed by the Tooth Fairy or, perhaps, the Internet.

Bankers push credit cards on people who can't possibly pay back what they will borrow. The profitability of the entire credit card industry is predicated on having a large population of people who have enough misfortunes that they can't pay off credit card debt costing 18 percent or more.

Today, according to Ram Research, more than 42 percent of all credit card holders are smart enough to pay off their balances on a monthly basis, up from 31 percent in 1990. This change is causing a profitability crisis in the credit card industry.

Mortgage brokers will show you how to borrow 80 percent on a mortgage and then 10 percent on a second mortgage and maybe another 10 percent for your down payment. You can find someone who will allow you to commit 40 or even, 50 percent of your income to fixed monthly obligations.

It is not mentioned that your new creditor doesn't care what--- or whether--- you eat.   Just make the monthly payment.

Borrowers need to remember that.

In McAllen, Texas there is a store that rents tires for your car. That's imaginative financing. Lender imagination, however, should not be confused with good personal finance for you and me.

Our competitive free market makes abundant credit possible. Abundant credit, however, is not a good thing for building personal net worth and financial security. It is a good thing for lenders in a strong economy. It is a disaster for lenders when the economy heads south.

Only a decade ago, taxpayers paid for a mega-billion bailout of our entire banking system. In the home lending area, part of the bailout could be traced to interest rate buy-downs on mortgages and low down payments. They made it virtually inevitable that thousands of homeowners would "walk" their loans (and homes) when the economy turned down.

And they did.

Most of the bankers who made those loans don't have jobs (or banks) anymore.

Sadly, their replacements haven't learned from the experience.