Since the subprime meltdown and foreclosure crisis started, lending guidelines have become increasingly tighter, making it harder for some borrowers to obtain a mortgage, leading to even more foreclosures and delinquent mortgages.

And it's about to get worse.

Thanks to the agreement Citi Mortgage made with Washington last week, a precedent has been set for bankruptcy judges to have the authority to rewrite the rules for a borrower with a mortgage loan. Judges could change the interest rate, the loan term, and even reduce the loan balance or loan principle.

What does that mean for you? If you are a borrower who wants to file for bankruptcy and plead for a reduction in the mortgage rate, loan balance, and terms... it might be a wonderful thing. But if you are someone looking to qualify for a mortgage in the future, expect the qualification procedures and approval process to become longer and more difficult. Borrowers who once could be approved but were on the edge of qualification guidelines will likely now find their application denied. Expect first time homebuyers to find it especially difficult in the future to qualify for anything but an FHA loan... why would a lender take the risk if a judge (who may or may not have any background in underwriting or finance) can arbitrarily reduce the principle, interest and terms of a loan costing lenders thousands of dollars per transaction.

In the near term, there's no telling what this will do to the mortgage market. But if legislation is passed allowing this, or if more lender's follow Citi's example... lending is only going to become more difficult in the coming months. And if lending is more difficult, expect home values to take longer to recover and sales to remain slow. Expect rates in the future to be higher for everyone and PMI (Private Mortgage Insurance) required on more loans.

If you were thinking about buying, now may be a sweet spot. As Washington becomes more and more involved, chances of rates and terms remaining as favorable as they are now is becoming very unlikely.