How tough is getting credit in Hampton Roads?

Borrowers will find more scrutiny of their loan applications from lenders that have been stung by the subprime loan debacle.

Some seeking to refinance a mortgage or open a home-equity line may be surprised to learn that their homes aren't appraised at what they thought they're worth - affecting the amount that can be borrowed.

Gary Pope and his wife envisioned saving $600 to $700 in monthly payments when they sought to refinance their home in Currituck County, N.C., earlier this year. Instead, his application was denied by the bank, which cited its tighter loan-to-value requirements, he recalled.

The couple wanted to refinance two mortgages totaling $385,000 with their existing lender. The rejection surprised him, Pope said, because "our house was recently appraised for $420,000 - $30,000 more than it was three years ago."

"We've always paid our bills, and we have good credit," said Pope, the Hampton Roads general manager for financial services company AIG/American General.

In its January survey of senior loan officers on their banks' lending practices, the Fed found that slightly more than half had tightened their standards for prime mortgages. Most demand higher credit scores, more detailed documentation of borrowers' income and larger down payments.

Some large lenders also have imposed tighter standards on new home-equity lines, reacting to a possible decline in property values. For Hampton Roads, Bank of America, Chase and Countrywide, for instance, have frozen the amounts of credit available on some existing lines of credit.

These home-equity lines offer homeowners a financial safety net and provide tax-deductible financing for major purchases, such as home remodeling and autos.

"A lot of lenders have looked at this situation, and we are no different," said David Bradley, a spokesman for Bank of America, based in Charlotte. "We recognize that for people who do get a letter, it can be a hardship, and we will work with them."

Bradley said the percentage of borrowers in Hampton Roads notified that they can't increase their borrowing is significantly lower than in some other markets, especially in Western states.

Navy Federal is one local lender that has not significantly changed its standards.

Partly because of a downturn in interest rates in January, Navy Federal made $1 billion more first mortgages during the first quarter than in the comparable period last year, said Mary McDuffie, executive vice president of lending at the Vienna, Va.-based credit union. A student recently walked into Norfolk State's financial-aid office wondering why the application for a bank loan to help cover tuition had gotten longer.

Lenders are asking for more information than they did before, said Terricita Sass, the university's associate vice president of enrollment management.

Students and families with good credit histories should secure financing with few problems, local financial-aid experts said. But most will face more scrutiny. They'll have to provide more detailed financial information and may pay higher interest rates.

The college financial-aid season has yet to enter full swing - typically, between late May and July - but aid officers are urging families to start looking at options early.

"This is all very much still in flux," said Edward Irish, director of financial aid for the College of William and Mary.

Private loans are just one piece of a puzzle that students often must tackle to pay for higher education. The pieces often include loans backed by the federal government, but the availability of private loans has triggered the greatest concern of late.

Similar to other types of consumer loans, such as mortgages and auto loans, private student loans depend on the recipients' creditworthiness, making them more vulnerable in this skittish lending environment.

Typically, students in greater need depend on private loans to fill the gap between college costs and federal aid. About 8 percent of undergraduate students nationwide borrow using private or state-sponsored loans that aren't federally guaranteed, according to the Project on Student Debt, an organization that studies the increasing need for families to borrow to pay for higher education.

At William and Mary in Williamsburg, about 3 or 4 percent of undergraduates borrow privately, Irish said.

At Norfolk State, 20 percent of students rely on this type of financing, Sass said. With these applications, many students depend on a co-signer who has a more-established credit history and can help the student obtain loan approval and a better interest rate. Some of those co-signers now face their own problems with mortgage payments and other debt and may no longer qualify to assist with a student's loan, Sass said.

"Students who have borrowed a lot of money up to this point and are becoming a higher risk to these companies, they might have a problem," she said.

The federal loan landscape has grown uncertain as well. More than 50 lenders stopped writing federally guaranteed student loans after they ran into trouble finding investors to buy the securities backed by that debt, according to FinAid.org, a Web site that provides information about student financial-aid sources. Almost 2,000 lenders remain in the program, however. For decades, automakers' finance subsidiaries served as important sources of credit for car buyers, especially when demand slackened and the industry sought to stimulate sales by offering cut-rate financing.

That credit could be more difficult to come by at two of Detroit's Big Three - General Motors and Chrysler - because both have sold their finance subsidiaries, noted George Hoffer, an economist at Virginia Commonwealth University who specializes in the auto industry.

Auto lenders also are dealing with an increase in consumer-loan delinquencies. According to the American Bankers Association, the volume of delinquencies for loans made through auto dealers surpassed 3 percent during the October-through-December quarter, the highest level in at least eight years.

Meanwhile, those lenders who finance new-car purchases have to deal with an increase in the number of prospective buyers who owe more on their existing vehicles than they're worth. This comes about because a car's value falls faster than the amount that is owed on the vehicle. In its January survey of bank lending officers, the Federal Reserve found that 90 percent of participating institutions hadn't changed their credit standards for approving new card applications.

That means credit cards remain available to the vast majority of Americans. What worries credit counselors in Hampton Roads and other parts of the country is that a greater number of people are using those credit cards for routine purchases, such as gasoline and groceries.

Some are maxing out on their limits, said Barbara Wright, of the counseling service Clearpoint Financial Solutions. The combination of heavy credit-card debt and a job loss or other setback has prompted a rise in personal bankruptcies during the past year.

Like credit cards, consumer credit - the type available from furniture and appliance stores, for example - remains available. But some stores are a bit more watchful.

Haynes Furniture Co., the Virginia Beach retailer that owns five stores from northeastern North Carolina to Richmond, has "selectively tightened" its credit requirements for customers because of the shifting terrain of the lending industry, said Bruce Breedlove, the company's senior vice president and chief financial officer, in an e-mail. Haynes offers a variety of credit plans, financing most of them in-house. "However, our lenders impose certain restrictions based on their requirements," Breedlove added.

At Grand Furniture last month, Monique Wright, 32, was surprised when the salesman talked her into a payment plan with no interest for a year when she bought a bedroom furniture set for her children for $2,250.

Describing her credit history as shaky, the single mother said she had intended to pay cash.

"They explained to me that it would help my credit if I paid on credit," Wright recalled.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com