The New York Times reports that a schoolteacher in Colorado recently got talked into buying a $134,000 fixer-upper with only 3.5 percent down. To afford that smidgen of equity, she liquidated her retirement savings. The bank rolled closing costs into the loan in return for a higher interest rate. Her monthly cost is 50 percent of her take-home pay. Happy for now, she may be a pink slip away from foreclosure and financial ruin.

Somebody, quick, call the government! The predatory lenders are back! Oh, wait: The U.S. government is supporting this transaction. The Federal Housing Administration made the loan possible by promising to pay it off if the teacher can't.

Now you know why many housing experts, including the FHA's own inspector general, are fretting that the...