While Fannie Mae has started to limit the number of loans it guarantees or buys so as to avoid a further bailout, the new policies have driven profits for big banks but have not helped consumers applying for mortgage loans, Bloomberg reported Oct. 22.

With federal agencies and conservatorships still backing 90 percent of new loans, competition is limited as is capacity for meeting loan demands, and the result has been large lenders getting very high margins on mortgages. Despite the Federal Reserve’s bond buying and its latest plans to acquire $40 billion of home-loan securities each month, interest rates for borrowers remained higher than they should have because of lack of competition in the marketplace, Bloomberg reported.

Fannie currently has about 1,000 approved lenders, but the agency has not disclosed how many have been capped or the total number of applications it has received and approved this year for seller-servicers. Some experts are worried that Fannie’s decision to limit volume on the number of loans its guarantees will hurt smaller lenders, which are a critical component to a housing recovery.

Refinancing applications reached a three-year high this month, straining staff at the nation’s largest banks and also resulting in higher interest rates designed to reduce demand. Bloomberg reported that interest rates could be more than 0.4 percent lower based on the gap between bond yields and borrowing costs over the last 10 years, but new regulatory expenses and legal risks have led to higher spreads.

JPMorgan, for example, had mortgage-production margins at well over 2 percent, according to CEO Jamie Dimon.

Smaller lenders have been trying to assume more market share now that Bank of America and MetLife Inc. are pulling out of the mortgage business, but that’s hard to do when they can’t get approval for government-backed loans. Bloomberg reported that the industry’s top player, Wells Fargo, made or bought 33.1 percent of home loans originated in the first half of 2012.

Bloomberg noted that lenders that are forced to sell mortgages they originate to larger firms instead of using the backing of government programs typically must give up contracts to manage outstanding debt created with new loans. Even in the current climate of low interest rates, buyers pay three to four times the contracts’ annual payments. Lenders also faced stricter standards from loan aggregators than they have from agencies like Fannie or Freddie.

Fed Governor Elizabeth Duke said that keeping smaller lenders in the market is critical because they will finance unusual loans that larger banks won’t. “You need to make sure you can still make the irregular loan, the one that doesn’t fit exactly in a box,” she told Bloomberg.