Page last updated at 15:53 GMT, Wednesday, 6 August 2008 16:53 UK

More misery for US mortgage firm

Home repossessed in US

Freddie Mac, which offers funding for a huge proportion of US mortgages, has posted a quarterly loss amid continued problems in the housing market.

As mortgage defaults climb and house prices sink, it made a loss of $821m (420m) in the three months to the end of June, down from a profit of $729m.

Shares in Freddie Mac fell sharply last month on fears that it would run out of money to fund its business.

The US government was forced to take radical steps to ease the panic.

Stronger position?

Freddie Mac, and its counterpart Fannie Mae, are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers.

As mortgage guarantors, they must pay out when homeowners default on their loans.

With the housing market across the US crumbling, their finances have come under severe stress.

In its latest set of earnings, Freddie Mac set aside $2.5bn, compared with $1.2bn in the first quarter of 2008, and slashed its dividend by 80% to five cents pending board approval.

The company said this reflected increases in mortgage delinquency rates, foreclosures and estimated losses due to continued declines in home prices, it said.

Freddie Mac reiterated that it would raise $5.5bn of new capital to shore up its balance sheet and raised the possibility that it may need to raise more than that depending upon "market conditions".

"We are confident the actions we are taking are strengthening Freddie Mac's financial and competitive position and will generate value well into the future," said Richard Syron, Freddie Mac's chairman and chief executive.

Shares in Freddie Mac were down 12% in late morning trade in New York while Fannie Mae shares had dropped nearly 9%.

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