During the housing boom, lenders relaxed their standards, allowing homebuyers with bad credit to borrow without a down payment and proof of income. Loose standards fueled the housing boom but now record numbers of delinquencies on subprime mortgages are aggravating the decline in sales and prices. Subprime borrowers could not make their monthly payments when their adjustable interest rates rose, causing foreclosures to soar. Now lenders are tightening credit to prevent more delinquencies in their portfolios, and some economists worry lenders are overcompensating for their past mistakes.

A mortgage-market contraction could prolong the housing slump and hurt the US economy, which most economists believe is already in a recession. If fewer people are able to take advantage of falling mortgage interest rates to refinance and lower their monthly payments or extract home equity, there will be less money circulating in the economy.

"When people with what looks like very good qualifications can't get access to credit, that is the classic credit crunch," said Nigel Gault, senior US economist for Global Insight, a Waltham consulting firm. "If people don't get credit they can't spend, and if they can't spend they don't generate the incomes for other people, and the economy looks worse. Then you're in a very nasty spiral," he said.

Those seeking home-purchase loans are facing higher hurdles. Marroni of New Boston Mortgage said he was shocked when a client who works in the financial industry was denied a mortgage last week to buy a South End condo with a large down payment. The executive, whose salary was in the high $300,000s, was moving to Boston from New York. His credit score was 770 and his wife's was 740, and they had found a buyer for their Brooklyn condo.

The lender, Marroni said, would not approve the couple for a loan even though the executive had a letter confirming his new employment; the lender wanted to see his first paycheck. In the past, Marroni said, "it was no big deal" for relocating executives to qualify for mortgages. "Now, it's a big deal," he said.

Home-equity loans and home-equity lines of credit are also scarcer because home prices are falling. Homeowners use these loans to obtain cash for renovations or other expenditures. They are backed by the equity in the borrower's house, which is equal to the property's market value minus the amount owed on the mortgage. With home prices dropping, banks are skittish about lending against properties that may lose more value in the future.

Countrywide, one of the nation's largest mortgage lenders, recently confirmed it is analyzing its loan portfolio and would cut off lines of credit to some customers. Countrywide said in a statement it is analyzing "the impact of lower property values on existing accounts." Another major lender, Wells Fargo amp; Co., said it is also restricting the use of existing lines of credit "in a small number of instances." Borrowers are finding it hard to refinance because lenders are pressuring appraisers to be conservative in estimating the value of each loan applicant's house. When homeowners want to refinance, lenders require a new appraisal to determine whether the property value can back the loan amount. "People want to refinance from an adjustable mortgage to a fixed rate, but when we do an appraisal of the properties the values aren't there," said Sushil Tuli, president of Leader Bank in Arlington. Matt Varghese has paid the mortgage on his Millis home on time since he bought it in 1993. Varghese, the owner of a medical transcription business, has a 720 credit rating - high by any lender's standard. Until last month, he said he had never been turned down for a loan. Leader Bank rejected Varghese's application to refinance his $417,000, fixed-rate mortgage to reduce his monthly payments. The appraiser came back with an estimate of his home's value that was $80,000 less than an appraisal just over a year ago. It was "not good enough to refinance," Varghese said. Biotech researcher Kerry Sullivan said a Citizens Bank loan officer invited her to apply for a loan and then turned her down. A Citizens spokesman said the bank does not comment on individual customers. Sullivan wanted to refinance and pull another $10,000 out of her Concord condo to pay legal bills from a divorce. She said her credit rating is in the "high 700s" and her property, purchased in 2004, has kept its value. When Citizens rejected her, she said, "I was completely shocked."

Kimberly Blanton