On Friday, Countrywide Financial - the largest U.S. mortgage lender - finally told their brokers to stop offering borrowers no-money-down home loans. From now on, borrowers will have to have at least a 5 percent down payment. Countrywide is the latest lender that tightened borrowing requirements. Washington Mutual and WMC Mortgage have both introduced similar restrictions.

Countrywide is now desperate to improve prudential lending standards. However, this horse bolted a long time ago. The belated attempt to close the barn door will have little practical effect on the rising tide of mortgage defaults.

Like many mortgage lenders, Countrywide spent five years building up a portfolio of high risk loans. Rapidly rising house prices, coupled with stagnant income growth led to many new homebuyers being stretched to the financial limits. Many of these bubblehomes were purchased with adjustable rate mortgages and other exotic and poorly understond financial products. Now that interest rates are adjusting upwards, Countrywide and other lenders are bracing for an avalanche of foreclosures, payments difficulties and defaults.

But why couldn’t Countrywide management see this problem coming? Isn’t obvious that offering 100 percent loans to customers with poor credit histories is about as dumb a thing as a lender can do? Mortgage lending isn’t rocket science. If someone has defaulted on a loan before, it is likely that they will do it again. A guy on a $50,000 salary is going to find it extremely difficult to maintain the payments on a $500,000 condo. And if he has bought five similarly priced condos, with financing provided by five “No doc” loans, then he is very likely to end up in foreclosure if condo prices slump by 5 to 10 percent.

Tightening lending standards signal the absolute and irreversible end of the housing bubble. It will shut off speculative demand. The so called “real estate investors” will no longer have the financing to continue with their ill-judged flippery. It is all over. From here on in, it will a painful story of foreclosures, defaults and mortgage lender bankruptcies.