More Hoops for Borrowers

"A lender might give you 100 percent financing, but they'll demand that you have a tremendous credit score," said Gumbinger of HSH Associates. "They might give you a loan that requires no documentation of income, but they'll require that you have a 20 percent down payment to offset the risk they're taking."

The requirements are being tightened for those who are buying a condominium, too. Fannie Mae, the largest investor in U.S. mortgages, now requires that lenders take a closer look at the condo developments, as well as at the borrowers.

For lenders who want to sell loans to Fannie Mae, that increasingly means filling out questionnaires that review the number of renters at a condo development, the concentration of investors there, any pending lawsuits and other factors that can affect marketability.

Fannie Mae has always required the questionnaire, but it generally accepted less extensive reviews for many borrowers, said Eric D. Gates, a mortgage broker at Apex Home Loans in Bethesda. The company is now limiting the shorter reviews to borrowers who have at least 10 percent equity.

Lenders who want to work with Fannie Mae and its rival, Freddie Mac, must conform to their rules. More lenders are doing so because Wall Street investors perceive these so-called conforming loans as a much safer bet than nonconforming loans.

In the nonconforming category are most loans made to subprime borrowers, who are generally defined as people with low credit scores. The scores that define subprime vary from lender to lender but traditionally have hovered around 620 on the most common scale, known as a FICO score, named after Fair Isaac Corp., a credit-rating agency.

Other factors that can knock people out of the more creditworthy "prime" category are past bankruptcy filings or foreclosures, as well as an inability or unwillingness to document income or assets.

When subprime borrowers can get a loan, it's generally been at a higher rate. But they will be hard-pressed to find any loan these days. With this year's jump in defaults, many investors stopped buying subprime loans, and funding for them dried up.

Mortgage bankers funded $177 billion in subprime loans in the first nine months of 2007, about $29 billion of it in the third quarter. That's down 66 percent from $522 billion in the first nine months of 2006, according to the trade publication National Mortgage News.

Enter the FHA

With subprime loans disappearing, the Federal Housing Administration has stepped in to fill the void for borrowers trying to refinance the loans they already have.

Most of these subprime borrowers have adjustable-rate mortgages, which started with low introductory rates that could later rise sharply. The most troublesome of those loans were the ones that originated in 2005 and 2006 and were due to adjust two to three years later.

As higher rates kicked in, large numbers of borrowers started missing payments, which is why the Bush administration announced the FHA Secure program in late August.