Shifting Housing Market Snubs Bad Credit

David Zionts, owner of Connecticut Mortgage Lenders LLC, poses in his office in West Hartford, Conn., Wednesday, Feb. 21, 2007. He says that some consumers are being squeezed out of the housing market. Zionts says that "Subprime lenders are requiring higher credit scores for higher loan values. Some of the more forgiving guidelines are beginning to go away." (AP Phoo/Bob Child) (Bob Child - AP)

"I heard that they really want you to be between 640 and 680 to get a home," said Grant, a 51-year-old divorcee who rents an apartment. "I don't feel like there's a way up."

The subprime market is suffering through the first downturn in the housing market since the industry exploded a decade ago, said Karl E. Case, an economics professor at Wellesley College in Massachusetts.

"It's in uncharted waters," Case said.

The housing slump and stricter loan requirements may put a dent in the nation's economy, with consumers having less money to spend because of higher interest rates and fewer refinancing options, Case said.

"People have been using their houses as ATM machines," he said. "All of that is going to slow."

Stock prices of several subprime lenders have also been affected. Fremont General Corp. in Los Angeles saw its shares increase more than 10 percent last week after announcing it would no longer offer subprime second mortgages.

Other companies, such as Countrywide Financial Corp., IndyMac Bancorp Inc. and New Century Financial Corp. saw stock prices drop as investors become more skittish about subprime loans. London-based HSBC Holdings PLC, Europe's biggest bank and a major player in the U.S. mortgage scene, acknowledged concerns with the U.S. subprime market this month and said it would set aside billions to cover mortgage loans it doesn't expect to be repaid.

Some analysts say there may be a positive note in the subprime market problems, because lenders won't be able to give mortgages to risky customers.

"The most immediate impact will be that both the lenders and investors will be more careful on who they make loans to," said Richard F. DeMong, a bank management professor at the University of Virginia. "In Finance 101, we try to teach that return should be enough to compensate for risk."

Although consumers with low credit scores will find it harder to get mortgages, they will still have some options, said Phil Cyr, owner of Equity Lenders, a small mortgage company in Berlin, Conn.

"There's still a saturation of lenders still out there lending in the subprime market," he said.