Two Bear Stearns hedge funds that invested in securities backed by subprime mortgages have very little or no value, the company told investors in a letter Tuesday.

The news, coupled with last week’s decisions by ratings agencies to downgrade their ratings on billions of securities backed by subprime loans, could force other securities firms to write down the value of such investments.

That would force originators of subprime loans to continue raising their rates, as investors demand higher returns for the risk involved in financing such loans. Benchmark derivatives indexes that track subprime loans hit new lows Wednesday — an indication of heightened perceptions of investor risk.

An index of credit swaps tied to subprime loans made in the second half of 2005, the ABX.07.1.BBB-, hit 43 basis points Wednesday, or less than half its issue price of 100. The ABX.06.2BBB-, which is tied to loans made in the first half of 2006, fell to 47.75.

Even before the most recent developments, credit spreads for subprime securities had already ballooned. The spread between BBB- rated subprime securities and LIBOR — about 500 basis points at the beginning of the year — had surpassed 2,100 basis points.

In a report issued today, analysts at mortgage giant Fannie Mae said they are revising downward their projections of home sales and starts for 2007, in part because regulators are also placing new restrictions on subprime loans.

“Not only has the combination of below-trend economic growth, lower affordability and investors leaving for greener pastures hit the housing market, but now regulatory changes that make it more difficult for borrowers to qualify for subprime and Alt-A loans are having an effect,” Fannie Mae said in its report.

Federal regulators have issued stricter guidance for nontraditional interest-only and pay-option loans, which Fannie and Freddie Mac say originators must follow by Sept. 13 if they want to resell their loans to the government-backed mortgage repurchasers.

New federal guidance for subprime loans, requiring originators to qualify borrowers at the fully indexed rate, is also expected to exclude more borrowers from such loans.

“We’ve edged our sales down further, knowing that there would be some households out there who simply won’t be able to get a loan now, that could have gotten a loan before,” Fannie Mae Chief Economist David Berson said in a conference-call discussion of the report.

Fannie Mae projects new- and existing-home sales will decline by 10.2 percent in 2007, and that housing starts will fall by 21.7 percent.

The projected sales for 2007 would be the lowest since 2002, and the expected two-year decline for 2006-07 the largest since the housing downturn of 1989-91, the report said.

Large inventories of unsold homes are putting downward pressure on home prices, the report said. But Fannie Mae analysts project the S&P/Case Schiller house-price index — a composite of repeat transactions in 20 cities — will fall only 2 percent in 2007.

Fannie Mae projects purchase-mortgage originations will fall more steeply this year than last, by 11.5 percent to $1.28 trillion. Refinance originations are expected to fall 9.3 percent to $1.19 trillion. Although recent interest-rate hikes are discouraging refinancing, many borrowers with upward-adjusting ARMs are refinancing into new loans with lower rates, the report noted.

Fannie Mae analysts said that with the Federal Reserve still concerned about a potential rise in inflation, they expect no easing of short-term interest rates in 2007. Fannie Mae says the Fed might cut the federal funds overnight rate by 25 basis points in the first have of 2008, to 5 percent.

Long-term rates “should move in fairly narrow bands,” the report said, with yields on 30-year fixed-rate mortgages staying between 6.5 and 6.85 percent for the rest of this year and next.

“Greater economic weakness than we expect, or flights to quality from economic or worldwide financial problems, would move rates toward the bottom of this range, while an uptick in economic activity (or) inflation would move them toward the top,” Fannie Mae said.

Fannie Mae’s outlook on the economy is mixed, with factors boosting and inhibiting growth roughly balancing out. Projected growth of 2.4 percent would be the slowest since 2002.

Federal Reserve Chairman Ben Bernanke gave a similar assessment to Congress today, saying the housing slowdown hasn’t hit bottom and will slow economic growth.

“The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards and the recent increase in mortgage interest rates,” Bernanke said in prepared remarks to the House Financial Services Committee. “Sales should ultimately be supported by growth in income and employment as well as by mortgage rates that — despite the recent increase — remain fairly low relative to historical norms.”

Bernanke warned that even if demand for housing returns as expected, the pace of construction will probably fall somewhat further as builders work down stocks of unsold new homes, and it’s likely that declines in residential construction continue to weigh on economic growth.

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