Mortgage crisis: Home loans are harder to get

— -- Wake-up call! If you're ready to buy or refinance a home, the turmoil on Wall Street may be further hurting your chances of getting a loan.

In a huge sell-off Friday, investors reacted to a mortgage industry crisis not seen in decades.

Some lenders are shutting down, laying off thousands of employees and leaving buyers in the lurch. Interest rates and the terms of loan offers are changing daily. And borrowers with tarnished credit are facing deal-killing loan terms — if they can find a loan at all.

Stock investors' wariness about the housing market spilled over Friday, driving a 281-point loss in the Dow Jones industrial average.

While poor repayment of "subprime" loans to borrowers with blemished credit is the primary concern, there are a few signs that more blue-chip borrowers are also having problems paying their mortgages.

Lenders are quickly closing the door to borrowers with low credit scores, small down payments for a new home or little equity in their current homes. Homeowners and buyers in high-cost areas such as California, Florida and the Northeast are also reeling as lenders chop "jumbo loan" programs.

"The market for virtually any loans with the slightest element of risk has effectively disappeared," John Bollman, an executive vice president at Cleveland-based National City Mortgage, wrote to his employees.

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In explaining the company's latest pricing and product changes that will weed out some of these borrowers, he said, "I have been a mortgage banker for 20 years and have never seen such a severe reaction to credit risks in the market place … (and) things may even get worse before they get better."

On Monday, the mortgage company's parent, National City Bank, said it has stopped taking applications for home equity loans and lines of credit as problems in the mortgage industry continue to spread.

"This is one of a number of steps National City has taken in recent weeks to help ensure that originations are in line with existing and anticipated market conditions," the company said. "We are continuing to closely monitor the market and take the appropriate steps to best navigate market conditions."