WASHINGTON - Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow - even for those with good credit.
Mortgage insurers, whose backing is required for borrowers who cannot afford the traditional 20 percent down payment on a home, have flagged nearly a quarter of the nation's zip codes where they refuse to insure some home loans.
That encompasses a wide variety of neighborhoods: McMansions in Scottsdale, Ariz.; luxury Miami condos; 1960s ranch houses in Flint, Mich.; and early 20th-century homes in Metuchen, N.J.
The entire states of California, Florida, Arizona, Michigan, Ohio and Nevada - which have seen the highest foreclosure rates and the worst price declines - are blackballed on some mortgage insurers' lists.
Banks that have lost billions because of bad bets during the housing boom are now reverting to strict lending standards not seen in nearly 20 years, including requiring the insurance when down payments are less than 20 percent, according to industry data and interviews with lenders.
"We're in the midst of an epic, broad, sweeping change in the mortgage industry," said Chris Sipe, a loan officer with America East Mortgage L.L.C. in Frederick, Md.
For new home buyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements. The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.
Lenders' changes have removed 30 to 40 percent of the borrowers who could have qualified in recent years, estimated Tom LaMalfa, managing director at Wholesale Access, a Columbia, Md., mortgage-research firm.
For example, Wells Fargo & Co. now requires a 25 percent down payment in the most distressed markets, according to a document sent to mortgage brokers in February.
Lenders and mortgage insurers also are requiring proof of income and employment, which they did not always do during the housing boom.
The reluctance to extend credit comes despite a flurry of government initiatives, including steady interest-rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their adjustable mortgages.
Lenders' growing leeriness threatens to dampen sellers' already soggy prospects for the spring home-buying season - and that means more pain for the already battered housing sector and the broader economy.
In recent weeks, mortgage insurers have flagged more than 9,600 zip codes in at least 34 states where they will not insure certain types of home loans - those for investment properties or second homes, riskier adjustable-rate or interest-only mortgages, and mortgages for buyers making down payments of less than 3 percent.
Each mortgage-insurance company sets its own rules, so coverage might not be available in a given zip code from one company but could be offered by another.
With banks and mortgage insurers pulling back, state and federal programs for first-time buyers and people with poor credit are attempting to fill the void.
The stinginess of banks is showing up in home-loan statistics: The value of all new mortgages plummeted to $450 billion in the fourth quarter of 2007, down 38 percent from a year earlier, according to the trade publication Inside Mortgage Finance.