Freddie Mac posts record loss

WASHINGTON – The mortgage crisis intensified Tuesday as Freddie Mac, the nation’s No. 2 buyer and guarantor of home loans, posted its largest quarterly loss ever and warned that it may need to curtail its business unless it can raise fresh capital.

Freddie Mac lost $2 billion in the third quarter, much more than Wall Street was expecting, primarily because it needed to set aside $1.2 billion to account for bad home loans. Freddie Mac also said it may slice in half its quarterly dividend of 50 cents per share – which would be its first dividend cut since becoming a public company in 1989.

That double dose of bad news sent Freddie Mac’s shares skidding 28.7 percent, the largest decline in the two decades of public trading.

It also sent a shudder through the mortgage market since Freddie’s loss was even larger than the $1.4 billion quarterly deficit of Fannie Mae, its bigger government-sponsored competitor. Analysts noted that Freddie Mac’s holdings of securities backed by high-risk subprime mortgages – the loans targeted to borrowers with tarnished credit records that succumbed to a wave of defaults starting earlier this year – greatly exceed those of Fannie Mae.

The remedies Freddie Mac is contemplating could add to the strain on the slumping housing market, analysts say, an outcome that would be sharply at odds with its government-mandated mission to keep money flowing.