Home foreclosures in New Hampshire could peak next year, climbing to roughly 2,000, driven by defaults on high-risk mortgages, according to a new report from the New Hampshire Bankers Association.

The upswing in foreclosures coincides with dramatic instability in the mortgage industry, which is leading lenders and investors to cut off access to what they deem risky loans. The fallout could create waves across the entire housing market, as some potential home buyers - particularly those with flawed credit histories or low incomes - find it more difficult to secure loans, mortgage lenders and brokers said.

"Everybody is rethinking how they issue credit, so expect even if you have very good credit that the standards are going to be even higher," said Brian Gottlob, of PolEcon Research in Dover, who compiled the report for the association.

"If you're a homebuyer and you've never had a home before, it's going to be very hard to get credit. It'll be harder for the move-up buyers, because nobody's going to be behind them buying their homes," Gottlob added. "I'm not going to say all of that is going to occur, but you can easily see how that can happen."

After several years of easy credit, access to subprime mortgages - loans for those with low incomes or poor credit, which often come with high interest rates or fees - is drying up, mortgage lenders and brokers said yesterday.

While subprime loans open the door to homeownership for a greater portion of the population, the mortgages have become increasingly risky. In 2005 and 2006, some borrowers secured mortgages without making a down payment or providing documentation of their income, the report said. Some subprime loans began with relatively low interest rates, or as "interest-only" (where you initially pay only the interest on the mortgage), but later spiked in cost.

"There are a lot of people who got mortgages in recent years who, in retrospect, it was probably not in their best interest to be approved," said Steve Cohn, senior loan officer at VIP Mortgage in Bedford. "Some of the guidelines had gotten too lax."

Subprime loans work well for some borrowers, Cohn said. But "there were brokers who pushed that at the exclusion of better options for the customer. So frankly, it doesn't break my heart if those kinds of brokers are going through hard times right now."

Although subprime loans make up only 13 percent of New Hampshire mortgages, they account for a large majority - nearly 70 percent - of foreclosures, according to the report. The number of subprime mortgages in the state skyrocketed in the past decade, from 1,700 to 22,000. Some subprime borrowers may not be aware of the ultimate costs of their adjustable-rate or interest-only mortgages, housing experts say.

This year, New Hampshire will see roughly 1,800 foreclosures, Gottlob estimated. And with payments on many subprime mortgages due to increase - or reset - this year, foreclosures will likely climb higher: Gottlob estimates that 2,000 to 2,100 homes will be foreclosed on next year. By contrast, there were roughly 150 foreclosures in New Hampshire last year, according to the Associated Press.

Because housing prices aren't rising and lending standards are tightening, homeowners in need of money will find it difficult to refinance, contributing to foreclosures. "You could see clearly how there could be a downward cycle that pushed more loans into foreclosure," Gottlob said.

As some lenders and brokers began offering risky subprime loans, New Hampshire banks generally stuck to more traditional mortgages, sacrificing a share of the mortgage market for lower-risk loans, the report said. Merrimack Savings Bank, for example, has escaped the pitfalls of the subprime lending crisis, said Paul Mizzi, the bank's chief operating officer. "We've just not got into those," he said. "As a result, we've not had the problems with credit quality."

But Kurt Strandson, president of Radiant Mortgage Inc. in Manchester, placed the blame for the current downturn on all forms of lenders. "All types of lending institutions - lenders, bankers and brokers - have offered products that are now being seen in the high number of foreclosures. And all the fallout is doing is limiting accessibility to housing, which is going to have drastic repercussions down the road."

If borrowers interested in interest-only or adjustable-rate loans, among others, "had to sign a disclosure that stated the worst case adjustment on any of these types of products, a lot of people wouldn't have agreed to take out these types of loans," Strandson said. "That's where legislation is needed."

With borrowers defaulting at higher rates, financial investors recently cut off money to some mortgage lenders. And earlier this week, American Home Mortgage Investment Corp., once a large mortgage lender, filed for bankruptcy protection. Other lenders have recently announced that they've stopped accepting new loans or have strengthened lending guidelines.

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