Consumer Credit Squeezed in New Economy

Nick and Shanna Tibbett rented a house in southern California to save money, planning to buy within a year. It's now been more than three.

"It is frustrating and it is surprising. We thought it was going to be easier than this," said Shanna Tibbett.

Nick has a steady job, an excellent credit score above 700, and $35,000 for a down payment. Three years ago, that was more than enough for a home costing about $400,000. But now, many banks require 20 percent down, so the Tibbetts cannot get a conventional mortgage, as CBS News Correspondent Ben Tracy reports.

Mortgage broker Jeff Lazerson says before the meltdown nine out of 10 clients got a loan. Now, one out of every two is denied. "What we do is we torture borrowers with paperwork and the loans seem to not ever get done."

Banks are trying to avoid a repeat of the loose lending practices that helped cause the meltdown in the first place.

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In 2005, 32 percent of mortgages approved were considered risky or subprime. This year, it's less than 1 percent.

"We want to know down to your pulse rate, your DNA, and your blood pressure if you can handle this loan," said Lazerson.

The credit squeeze is also putting the brakes on auto loans. In the first quarter of 2008, 5 million auto loans were made. That dropped to just 3.5 million this year. And credit cards are increasingly what's not in our wallets.

In 2008, consumers had an average of 3.1 credit cards. Now it's down to 2.8, and as fewer Americans want them banks tighten credit lines.

"I think the day when unemployment begins to decline and house prices begin to rise is the day when we will see more credit flowing out to consumers," said Mark Zandi of moodys.com.

In the meantime, the Tibbetts will keep making deposits -- in their piggy bank.