NEW YORK (Reuters) –

Freddie Mac on Wednesday posted its

fourth straight quarterly loss as it braced for a prolonged

housing crisis by setting aside twice as much money for bad

loans and setting plans to slash its dividend by at least 80

percent.

The worse-than-expected results come just three weeks after

U.S. authorities orchestrated a sweeping effort to prop up the

second-biggest provider of U.S. residential mortgage funding

and its rival Fannie Mae, Freddie Mac affirmed a commitment to

raise fresh capital.

Freddie Mac’s chief financial officer repeated that it

continues to maintain a surplus over regulatory capital

requirements, and said the company can wait for “choppy” market

conditions to improve before raising capital, which could

exceed $5.5 billion.

For the second quarter, McLean, Virginia-based Freddie Mac

reported a loss of $821 million, or $1.63 cents per share,

compared with a profit of $729 million, or 96 cents per share,

a year earlier.

That included the first loss from its holdings of subprime

and other risky loans, which formed a significant part of its

$2.8 billion in realized and anticipated losses stemming from

the steepest U.S. housing downturn since the Great Depression.

“Credit-related expenses were far higher than what guidance

had been,” said Rajiv Setia, a strategist at Barclays Capital

in New York. Barclays was expecting about $2 billion, “and that

was on the high side” of analyst estimates, he said.

It was not immediately clear whether the loss was directly

comparable with the average estimate among Wall Street analysts

for a loss of 28 cents per share, according to Reuters

Estimates.

FOURTH STRAIGHT LOSS

The second-quarter loss follows a $151 million loss in the

first quarter and brings its cumulative loss over the past four

quarters to more than $4.6 billion.

“While we expect continued housing and economic weakness

will affect our overall performance this year, we continue to

maintain a surplus over all regulatory capital requirements,”

Chairman and Chief Executive Richard Syron said in a statement.

“We remain committed to raising $5.5 billion of new capital and

will evaluate raising capital beyond this amount depending on

our needs and as market conditions mandate.”

Chief Financial Officer Buddy Piszel told Reuters it was

still reasonable to expect a housing market recovery by early

2009, but “we have to prepare for a stress condition that looks

worse than that.”

Freddie Mac shares plummeted by more than 17 percent from

yesterday’s closing price of $8.04.

Freddie Mac and rival Fannie Mae (FNM.N) faced a storm of

stock selling last month as investors speculated the companies

would fall short of the capital needed to offset losses

sustained from delinquent mortgages.

The turmoil led U.S. Treasury Secretary Henry Paulson, in

concert with U.S. Federal Reserve Chairman Ben Bernanke, to

arrange emergency measures that bolstered government backing

for the companies.

DIVIDEND SLASH

To help preserve capital, Freddie Mac said it would slash

its quarterly dividend, pending board approval, by at least 80

percent to 5 cents a share or less from 25 cents a share. On an

annualized basis, that will save Freddie Mac more than $500

million based on current shares outstanding.

It will also halt the rapid growth in its $792 billion

portfolio as it becomes more conservative with capital, Chief

Financial Officer Buddy Piszel told Reuters. The company will

still make purchases to replace loans matured or refinanced

from its portfolio, he said.

Freddie Mac, along with its larger rival Fannie Mae, owns

or guarantees more than $5 trillion in mortgages, or nearly

half of all U.S. home loans.

Freddie said revenue rose by more than 10 percent from the

first quarter to $1.69 billion, including a increase of 92

percent in net interest income to $1.5 billion.

But the company more than doubled its provisions for loan

losses to $2.5 billion since the end of the first quarter. All

credit-related expenses surged to $2.8 billion in the quarter

from $1.4 billion in the previous quarter and $463 million a

year earlier.

Total credit losses rose to $810 million from $528 million

in the first quarter.

Freddie Mac shares closed Tuesday at $8.04, up 6.9 percent

on the session amid the biggest one-day gain for the benchmark

Standard & Poor’s 500 (.SPX) in four months. While the stock

has more than doubled from its early-July low of $3.89, it

remains nearly 90 percent below its 52-week high of $66.65 set

last August.

(Editing by Theodore d’Afflisio)