Nov. 14 (Bloomberg) -- Freddie Mac, seized by the government two months ago, asked the Treasury for $13.8 billion after a record quarterly loss caused its net worth to fall below zero.

The mortgage-finance company, which had a net worth of negative $13.7 billion at the end of the third quarter, said it expects to receive the money by Nov. 29. The net loss widened to $25.3 billion after the company wrote down tax assets and providing for bad mortgages and securities, Freddie said in a statement today.

Freddie's demand adds to the government's growing burden as it tries to avert a collapse in financial markets spurred by the worst housing slump since the Great Depression. The U.S. pledged $100 billion each to Freddie and larger rival Fannie Mae when it placed them into conservatorship in September. Fannie said this week it may need more money at the end of the year.

``You could very well get losses north of $100 billion on both of these companies,'' said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Freddie Chief Executive Officer David Moffett, 56, named in September when the government seized control of the company, increased writedowns for bad mortgages and securities and took a charge against most of Freddie's so-called deferred tax credits.

Fannie CEO Herbert Allison, 65, took similar steps earlier this week, causing the Washington-based company to record a $29 billion loss.

`All too Necessary'

The Federal Housing Finance Agency took control of Freddie and Fannie after examiners found their capital had been depleted too much. Treasury Secretary Henry Paulson at the time pledged to invest the $100 billion as needed in each company to maintain their positive net worth in an effort that's expanded into a broader rescue of banks and short-term debt markets.

Paulson said at a news conference in Washington on Nov. 12 that the decision to seize control of government-sponsored enterprises Fannie and McLean, Virginia-based Freddie ``proved all too necessary.''

``The GSEs were failing, and if they did fail, it would have materially exacerbated the recent market turmoil and more profoundly impacted household wealth, from family budgets, to home values, to savings for college and retirement,'' Paulson said.

Treasury has ``stabilized'' the companies, which ``now operate on stable footing,'' Paulson said. ``They have strong government support backing both future capital and liquidity needs.''

Not Sufficient

Fannie said this week it may need more money than Treasury has pledged to stay afloat.

``This commitment may not be sufficient to keep us in solvent condition or from being placed into receivership,'' if there are further ``substantial'' losses or if the company is unable to sell unsecured debt, Fannie said in a Nov. 10 filing with the U.S. Securities and Exchange Commission.

Freddie's quarterly loss translates to $19.44 a share. Freddie wrote down its deferred tax assets by $14.3 billion, leaving $11.9 billion. Companies build up tax credits as their losses grow, keeping them as assets in anticipation they can be used when profits return.

The company took a $5.7 billion provision for credit losses, up from $2.5 billion in the second quarter. Total credit expenses, including provisions for future losses, increased to $6 billion from $2.8 billon last quarter.

Government Dividend

Fannie's net worth, or the difference between assets and liabilities, tumbled to $9.4 billion as of Sept. 30 from $44.1 billion at Dec. 31. The company said Nov. 10 that the number may be negative by the end of the year.

Fannie and Freddie will have to pay the Treasury a 10 percent annual dividend if they access the federal funding. The cost, which is only paid out if the companies are profitable, will drag down earnings even if the housing market eventually turns around, Rajiv Setia, a fixed-income strategist at Barclays Capital in New York, said.

``Once you have $50 billion in preferred outstanding at a 10 percent rate, it leaves virtually nothing for common shareholders,'' said Setia, who estimates the cost at $5 billion a year. ``And the prospect of being able to earn your way out, even if credit conditions improve, is outrageous.''

Freddie said the dividend will cost $1.5 billion. If Freddie's losses leave it unable to pay, the unpaid amount will be added to the total outstanding balance of Treasury's senior investment and the dividend rate will increase to 12 percent.

Shareholders

Common shareholders of Freddie and Fannie were all but wiped out after losses prompted the government to place the companies into conservatorship on Sept. 6. Freddie, which traded above $47 a year ago, dropped 6 cents to close at 67 cents on the New York Stock Exchange. Fannie dropped 8 cents to 54 cents and is down from $47.80 12 months ago.

Freddie's stock market value slumped from $22 billion at the beginning of the year to about $2.3 billion as of yesterday, including the government's 79 percent stake. Fannie's value is $3.3 billion.

Fannie and Freddie own or guarantee at least 40 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their cost of borrowing and the yield on the debt. They also guarantee and package loans as securities for a fee.

Freddie has been directed to increase its holdings of mortgage loans and bonds, though faces difficulty doing so because of an ``an extremely limited ability'' to issue callable and long-term debt, according to a regulatory filing today.

Borrowing Costs

Fannie and Freddie's borrowing costs jumped relative to benchmarks after the takeover, as foreign buying waned and other investors dumped assets to raise cash. The government's pledge to guarantee bank debt also offered a competing investment.

Yields on Freddie's 2-year debt hit a record 158 basis points more than U.S. Treasuries on Oct. 30. They climbed about 11 basis points to 147 basis points today, according to data complied by Bloomberg. A basis point is 0.01 percentage point.

Fannie and Freddie stumbled just as the government started leaning on them to help turn around a housing slump, which is headed into its fourth year.

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac, a provider of real estate data based in Irvine, California, said on Oct. 23.

Lower property values will keep eroding home equity. The S&P/Case-Shiller home-price index of values in 20 U.S. cities dropped 16.6 percent in August from a year earlier, the fastest pace on record. The index has been lower every month since January 2007.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: November 14, 2008 16:35 EST