Freddie Mac loss swells as mortgage crisis deepens

By Al Yoon

NEW YORK (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), the second-biggest provider of U.S. residential mortgage funding, on Thursday said its fourth-quarter loss widened to a record $2.5 billion as the housing crisis worsened.

Freddie Mac, as well as rival Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz), suffered from soaring defaults on mortgages guaranteed by the two companies as nationwide home prices declined in 2007 for the first time since the Great Depression.

The company also warned it expected to lose billions of dollars more in upcoming quarters as the housing market slump deepens and more borrowers fall behind on payments.

Regulators have loosened restrictions on the two government-sponsored enterprises (GSEs) in the hope they will be able to prop up real estate by holding financing costs down for a bigger pool of home buyers. The GSEs hold charters from Congress to boost homeownership.

However, the companies' staggering losses and desire to protect capital in a crumbling credit market has curbed their power to stabilize the housing market.

Fannie and Freddie have had to raise fees to lenders, which analysts said may extend the credit crunch the GSEs are being asked by Congress to undo.

The mortgage finance companies' capital is strained as they must write down the values of mortgage securities they own and their contracts to guarantee mortgages backing bonds they issue. At the same time, capital is needed to back new investments and rapid growth in their mortgage guarantee businesses.

Losses led the companies to raise $13.8 billion through the sale of preferred stock last quarter.