The Federal Housing Administration (FHA), a sort of lesser-known version of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), wants you to know that everything's cool as is, and will hear nothing of this "lending standards" blather.

FHA, you see, backs mortgages with down payments as low as 3.5%. Since 3.5% is positively pitiful in an industry where 20% is the norm (and seeing how taxpayers are liable for these loans), some members of Congress want FHA to up its minimum down payment requirement to 5% ... still extremely low, mind you.

But FHA commissioner David Stevens thinks that's rubbish, telling the Mortgage Bankers Association, "When I see members of Congress move a bill out that says raise it to 5% ... I get very concerned. It isn't the down payment on its own that causes a default."

Well, OK. I understand that the fear of incoming regulation gives people heartburn. But let's look at the facts. As I noted earlier this summer:

Regression analysis compiled by a University of Texas economics professor shows that being underwater is by far the dominant cause of foreclosure. Factors that assign prime borrower status -- such as credit scores, monthly payments, and income -- aren't nearly as conducive to foreclosure as whether a homeowner owes more than their home is worth.

Low down payments = underwater mortgages = defaults. It's pretty simple: When you have skin in the game, your chances of default diminish, as does the incentive to do so.

Some will say, "Sure, but that alone doesn't prove FHA's standards need to be overhauled. Maybe 3.5% works for them." But check this table out. Enough said.

As fellow Fool Dan Caplinger wrote earlier this year, "It's too late to force existing homeowners to pony up a big down payment to supplement their home equity and get their mortgages back above water. What we can do, though, is make sure we don't repeat the missteps of the past ..."

Agreed. And when the FHA is on track to insure more than $1 trillion in mortgages -- larger than Bank of America (NYSE:BAC) and Wells Fargo's (NYSE:WFC) private mortgage book combined -- these aren't missteps anyone can afford to take.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.