Government-sponsored mortgage lender Freddie Mac, the second largest U.S. mortgage company, posted a $2 billion loss for the third quarter and warned that it may not have enough cash to cover its mortgage commitments.

“It’s as bad as it possibly could be,” said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York told Bloomberg, as he downgraded the lender to “sell.”

Government-sponsored mortgage lenders Freddie Mac and Fannie Mae were considered “less vulnerable in the housing crisis because have had less exposure to high-risk, subprime mortgages,” said the Associate Press.

“Without doubt, 2007 has been an extremely difficult year for the country’s housing and credit markets and, as our third quarter financial results reflect, we have been impacted by the deterioration in these markets,” said Richard F. Syron, Freddie Mac chairman and chief executive officer in a statement. “We recognized the challenges facing the mortgage markets, however, and have taken further steps to address them. At the same time, as our charter mandates, we have continued to meet our mission by playing a stabilizing role in the markets and supporting our customers.

“Freddie Mac is a housing finance company operating in what today is a troubled housing and credit market. It will take time for this market to turn around. But as it improves, we are optimistic about Freddie Mac’s longer-term prospects. The market shift towards fixed rate originations and improved pricing and credit standards should position us well as the weakness in credit markets begins to improve and we are able to leverage our traditional strengths.”

Freddie Mac and Fannie Mae account for 40% of the U.S. home loan market, and the losses will mean that less cash will be available for new loans.

“There is nothing we see right now to be more optimistic,” Chief Financial Officer Anthony Piszel told Bloomberg. He told analysts on a conference call that the fourth quarter “is not going to be pretty.”

Freddie Posts Loss, May Cut Dividend; Shares Plunge [Bloomberg]
FREDDIE MAC REPORTS THIRD QUARTER 2007 NET LOSS OF $2.0 BILLION OR $3.29 PER DILUTED SHARE [Freddie Mac]
$2 Billion Freddie Mac Loss [AP]
(Photo:Carol T. Powers/Bloomberg News)

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.