NEW YORK -- Fannie Mae and Freddie Mac are demanding higher returns from lenders in exchange for buying loans that help finance rental-apartment buildings, as the two mortgage-finance giants expand in the sector.

The rate increases, the most recent of which came in the past week, are attributable to generally higher borrowing costs and efforts by companies to maximize gains from the sole bright spot in their portfolios.

Fannie and its smaller rival, Freddie, have recorded combined losses of about $14 billion in the past four quarters from soaring defaults on single-family-home mortgages. Those losses are expected to continue for at least another few quarters, and some analysts don't think the companies will return to the black before 2011.

The terms of the multifamily, or apartment-building, business today "are better from a credit and pricing perspective than 12 months ago," said Mitch Kiffe, vice president of multifamily loan production at Freddie.

Since the beginning of the year, Freddie has increased rates as much as 0.6 percentage point to buy multifamily loans, Mr. Kiffe said.

"We saw lenders pull back from the [multifamily] market," said Heidi McKibben, vice president of multifamily-loan production at Fannie Mae. "That's allowed us to increase our purchase of multifamily loans."

Ms. McKibben declined to comment on Fannie's strategy for its multifamily portfolio, saying that the company makes "adjustments to pricing" in line with the broader market.

The two government-sponsored enterprises provide funds for the purchase of apartment-rental buildings. They don't lend directly to borrowers but rather buy individual loans and pools of loans from a list of lenders that follow guidelines set down by Fannie and Freddie.

This year through June, Fannie bought $18.2 billion of these loans from lenders -- the most it has snapped up from this group in the first six months of any year. During the same stretch, Freddie bought $8.3 billion of multifamily loans, a 49% increase from a year earlier. Fannie's multifamily-loan book stood at $163 billion through June, up more than a quarter from a year earlier. Freddie's holdings jumped more than 10% to about $64 billion as of June 30 from the end of last year.

The firms' most recent moves on pricing put borrowing costs "in the mid-6% range, compared to the low-6% range just last week," Haendel St. Juste, an analyst at Green Street Advisors, said.

Investors, wary of falling property prices and rising defaults, have shunned mortgage securities.

Fannie and Freddie's involvement in rental-apartment buildings has propped up the sector. "You have an industry that is basically counting on a single source of capital" to keep it moving, said Richard Anderson, an analyst at BMO Capital Markets. Higher rates are "going to be keeping some multifamily senior executives up at night."

Write to Aparajita Saha-Bubna at Aparajita.Saha-Bubna@dowjones.com and Dawn Wotapka at dawn.wotapka@dowjones.com

Developers wooing buyers with incentives

Housing’s Chill Hits Apartments

FHA Raises Premiums for Home Loans

Regional Buyers Go Apartment Hunting