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This is DAY TO DAY from NPR News. I'm Alex Cohen.

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I'm Alex Chadwick.

The subprime mortgage crisis is bad for borrowers and for lenders too and there's no sign that either can expect a happy New Year. The rules are changing for everyone.

For the final part of our series on where we are with the housing crisis, Phyllis Fletcher reports on one Seattle mortgage broker.

PHYLLIS FLETCHER: David Hatlen will spend a little more time in 2008 saying things like this.

Mr. DAVID HATLEN (Branch Manager, HomeStreet Bank, Seattle): (Unintelligible) Well, there's a couple of issues that popped up your credit score. It looks like your credit score is a little bit less than what we were hoping to have Let's take a look at what caused this. And I'll go through it. Well, it looks like you have a couple of collections from the ABC company, for our Verizon collection…

FLETCHER: This is about the time Hatlen sees the blotches.

Mr. HATLEN: Blotching this actually comes out in quite a few people. You'd be surprised, as soon as you bring up the credit report, all of a sudden you look up and, you know, there are a couple of blotches on the neck and you see that blood pressure grow up.

FLETCHER: Hatlen is a loan officer and manager at HomeStreet Bank in Seattle. His bank is on the conservative side. He says he never doubt in a lot of loans that would be considered high risk or subprime, but he and his clients are still affected by them. And now, he has some bad news. 680 used to be considered a decent credit rating, even 660 was okay. But starting next month, people with credit ratings in that range will have to pay a higher interest rate. Three quarters of a point higher.

Mr. HATLEN: So in a $400,000 loan, that's a $3,000 hit.

FLETCHER: Let's say your credit rating is even lower.

Mr. HATLEN: You know, if somebody with two or three collections and maybe a couple of lattes here or there, but not definitely not bad.

FLETCHER: Not bad, but those late payments will costs you. Your interest rate will be even higher. So, again, on a $400,000 loan…

Mr. HATLEN: That's a $5,000 add-on. So that's a pretty big hit.

FLETCHER: Hatlen says the bar and credit ratings used to be a lot lower and that was a pass failed test. Either you had good credit and got a standard loan or you didn't. Instead, maybe you got a loan with less favorable terms, but lower requirements.

Mr. HATLEN: Those loans are now pretty much gone.

FLETCHER: And with the new fees when someone's credit rating is just okay, Fanny Mae and Freddy Mac will make a borrower take on more risks. Because of that, Hatlen has a few clients running Seattle trying to get a house before the rules kick in.

And he has four clients who qualified for loans until Wall Street pulled out of the subprime market. Suddenly, this summer, they didn't qualify for anything. Their credit rating wasn't quite high enough or their down payment wasn't big enough.

Mr. HATLEN: Oh, that's always a tough phone call to make. Two of those four people have already gotten into another home. One is working on it and one, I think, is probably really discouraged and they don't have the ability or the want to really save money.

FLETCHER: It doesn't seem fair. People in the credit score gray area would have had no problem getting a house last year. They wouldn't have had to sit there and go over every little mistake.

Mr. HATLEN: It isn't fair sometimes.

FLETCHER: I showed him closing papers for the house I bought through this bank with my husband this year.

Mr. HATLEN: Let's take a look. Here's the rest to your paperwork.

FLETCHER: He says I'm one of those people who would be able to jump that credit hurdle, even today.

Mr. HATLEN: So good job. You got a good loan, nice save. Perfect loan.

FLETCHER: Really?

Ms. NOREEN LeBLANC (Program Compliance Administrator, Washington State Housing Finance Commission): I don't see anything in here that would really be a red flag.

FLETCHER: Whew. That's Noreen LeBlanc. She works for the Washington State Housing Commission. The Commission helps people get affordable loans. LeBlanc says subprime wasn't always a bad word.

Ms. LeBLANC: To me, the subprime terminology - that had a negative impact when it got associated with predatory lending practices.

FLETCHER: Bait and switch routines. Getting borrowers into loans that were meant for people who have money, but can't document it in traditional ways. She says anyone who got a loan that have questions about should show the closing papers to a relative or friend or someone else they trust.

David Hatlen says he'll probably hear a lot more moaning and groaning about the new fees in 2008, but he says it's all part of a cycle.

Mr. HATLEN: Starting back in about 2003, I was thinking, boy, the shoe has to drop at some point. We can't have these little rates for this long of a period a time and also when you start seeing Dennis' quitting their job so they can remodel houses and flip then, that's never a good sign.

FLETCHER: He says real estate is a feast and famine business.

Mr. HATLEN: We've had really big feasts for a long time and when the bigger feast the bigger the famine.

FLETCHER: For NPR News, I'm Phyllis Fletcher in Seattle.

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