WASHINGTON Freddie Mac set aside $1.2 billion in the third quarter to account for bad home loans and posted a $2 billion loss Tuesday, prompting the nation's second largest guarantor of home mortgages to seek additional sources of capital.
Losses widened from $715 million last year during the same period, sending shares tumbling nearly 13 percent, or $4.70 to $32.80 in pre-market trading.
Freddie Mac said it made the provision for credit losses in the July-September period because of defaults on home loans, which "reflects the significant deterioration of mortgage credit."
The $2 billion loss for McLean, Va.-based Freddie Mac worked out to $3.29 a share, compared with $1.17 a share, in the third quarter of 2006.
Losses far exceeded Wall Street analysts expectations of a 22 cent per share loss, according to a poll by Thomson Financial.
The results for Freddie Mac, together with a recent report by its larger sibling Fannie Mae, heighten investor anxiety over the government-sponsored companies, which had been considered less vulnerable in the housing crisis because have had less exposure to high-risk, subprime mortgages.
Freddie Mac said Tuesday it is "seriously considering" cutting in half its dividend in the fourth quarter and has hired Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. as financial advisers to help it examine possible new ways of raising capital in the near future.
Freddie Mac's regulatory core capital was estimated at $600 million in excess of the 30 percent mandatory target capital surplus directed by the Office of Federal Housing Enterprise Oversight
"Without doubt, 2007 has been an extremely difficult year for the country's housing and credit markets and, as our third-quarter financial results reflect, we have been impacted by the deterioration in these markets," company Chairman and CEO Richard Syron said in a statement. "We recognized the challenges facing the mortgage markets, however, and have taken further steps to address them."
So far this year, Freddie Mac has recognized $4.6 billion in pretax credit related items.
Buddy Piszel, chief financial officer, said Freddie Mac is moving to stem losses.
"We have begun raising prices, tightened our credit standards and enhanced our risk management practices," Piszel said. "We also continue to improve our internal controls."