(By Mayur Pahilajani - iStockAnalyst Writer)

McLean, VA – Freddie Mac (NYSE: FRE) approached the U.S. government to provide nearly $14 billion as the first investment under Treasury's bailout program after the company posted a net loss of $25.3 billion in the third quarter.

The net loss for the quarter ended September 30, 2008, was $19.44 per share, compared to a net loss of $1.2 billion, or $2.07 per share, for the same quarter a year earlier. The market analysts on Wall Street were expecting the company to post a net loss of 89 cents in the third quarter.

The huge losses pushed the company's stockholders’ equity or deficit down by $13.8 billion, which has reduced its net worth to drop below zero.

The government has been trying to improve the lending capacity of the financial companies, including Freddie Mac and Fannie Mae, as housing sector continue to remain weak following last summer's subprime mortgage contagion.

Fannie Mae and Freddie Mac own or guarantee almost 31 million mortgages, about 58 percent of all single family mortgages, according to the Federal Housing Finance Agency. The figure constitutes around 40 percent of the $12 trillion in U.S. residential mortgages outstanding debt.

U.S. Treasury Secretary Henry Paulson had announced late Wednesday that he now has plans to inject $700 billion directly into banks and other firms to prevent their failure and the funds would not be used to purchase distressed mortgage-backed assets as originally planned.  

"Unemployment rates also worsened significantly. California, Arizona and Nevada saw increases of between 14 percent and 27 percent in unemployment from the second quarter to the third quarter of 2008, on a seasonally-adjusted basis, while the national rate exceeded 6 percent," the company said in a filing to SEC. "Unemployment rates increased again in October to a national rate of 6.5 percent."

In October, the number of homeowners in the U.S. receiving a foreclosure filing -- default notices, auction sale notices and bank repossessions -- surged by 25 percent  to 279,561 U.S. properties, according to Irvine, California-based research firm RealtyTrac yesterday.

The McLean, Va.-based company, which was seized by federal regulators more than two months ago, reported that it is likely to receive the funds from the government by November 29.  Under the Purchase Agreement, Treasury has committed to provide the company up to $100 billion in funding under specified conditions. The government owns 79 percent stake in the company.

Third-quarter net losses were driven primarily by a writedowns of $14.3 billion related to the company’s deferred tax assets and $9.1 billion writedowns were related to mortgage securities.

The company also reported $6 billion in credit-related losses arising from the deterioration in market conditions during the quarter, including declining home prices, rising unemployment rate, substantial decline in consumer spending and tightening of both consumer and business credit.

"Our loan loss severities, or the average amount of recognized losses per loan, also increased in the third quarter of 2008, especially in California, Florida and Arizona, where home price declines have been more severe and where we have significant concentrations of mortgage loans with higher average loan balances than in other states," the company said in the filing on Friday.

Shares of Freddie Mac were moving down by 10 cents or 13.70 percent to 63 cents. The stock of the lender has declined to $2.3 billion in market value from almost $22 billion reported at the start of this year.

Sources: http://ir.10kwizard.com/filing.php?doc=1&attach=ON&ipage=5977784&repo=tenk&source=1372&welc_next=1&fg=23
http://www.freddiemac.com/news/archives/investors/2008/3q08er.html