Just what the housing market needs, more expensive mortgage credit.

MORTGAGE rates are typically driven by the financial market’s outlook for long-term interest rates, but not always. Policy changes at Fannie Mae and Freddie Mac, the two government-sponsored companies that buy most mortgages issued by United States lenders, recently helped drive that point home.

This month, Fannie and Freddie increased the fees they charge lenders for many loans, effectively bumping up interest rates for many borrowers who have marginal credit. The companies also tightened their policies on refinance loans that enable an owner to take cash out of a home.

Fannie Mae was the first of the two mortgage companies to increase its fees for lenders, doubling its current charge on most loans, to a half of one percentage point, and Freddie quickly followed with similar fee changes. Professionals expect lenders to pass these charges along to borrowers by increasing the mortgage rates they quote.

Many owners with long-term mortgages refinanced their loans when interest rates were below 6 percent in recent years. Now that rates are inching higher, the only reasons that one might refinance a loan at a higher rate, lenders and brokers said, would be to extract cash or to shift from an adjustable-rate loan to a fixed-rate one. But Fannie and Freddie’s recent policy changes have reduced the number of people who qualify for such transactions.

Even those with excellent credit will not be able to take cash out of their homes if, after the loan, they have less than 15 percent equity in the homes. Previously, the threshold was 10 percent, and people with low credit scores could not get such deals.

Thatcher Zuse, president of Sound Mortgage, a Connecticut mortgage brokerage firm, said that on a $400,000 home, the changes reduce the equity available to owners by $20,000, on top of any decline in home value. ” A lot of people have already cashed out,” he said, ” but for the ones who haven’t, this takes a lot of money off the table.” (emphasis mine)

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I expect homes prices to continue to fall steeply for most areas since mortgage money continues to tighten. I’m not a mortgage market expert but it seems to me that after prices bottom out, there will be tremendous opportunities for new lenders to enter the mortgage market while it still has huge yield spread premiums but little downward price potential. It will likely take the established, shell-shocked bureaucracies a long time to figure out the game has changed and to take baby steps to change their now too conservative lending policies.

Those with cash or access to credit may be able to do very well indeed on their direct real estate investments as well.