July 18 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage-finance company, said early indications of its second- quarter results show it probably has enough capital to remain above the 20 percent mandatory surplus demanded by its regulator.

The company isn't under any mandate to raise more than the $5.5 billion in capital it agreed to earlier this year with its regulator, Freddie Mac said in a filing with the U.S. Securities and Exchange Commission today that was a step toward becoming fully registered, removing a hurdle to selling stock and fulfilling an agreement made six years ago with lawmakers. The SEC is likely to approve the registration today, according to people with knowledge of the plans.

The quarter will reflect ``the challenges that face the industry,'' Freddie Mac said in the filing. ``We expect to take actions to maintain our capital position above the 20 percent mandatory target surplus.''

Freddie Mac may raise as much as $10 billion selling new shares to investors, the Wall Street Journal reported. McLean, Virginia-based Freddie Mac lost 64 percent during the past month and the larger Fannie Mae declined 56 percent on concern they may not have enough capital to survive the housing slump. Freddie Mac's plan to raise cash might avoid an immediate government rescue and stricter oversight that would come with such a bailout, the Wall Street Journal said, citing people it didn't identify.

The companies' stock slump prompted U.S. Treasury Secretary Henry Paulson to announce a rescue plan on July 13, seeking authority to buy equity in Freddie Mac and Fannie Mae and increase a credit line to the companies should they request it. The Federal Reserve agreed to lend directly to the companies.

Freddie Mac rose 38 cents to $8.71 in early New York Stock Exchange composite trading. Fannie Mae rose 96 cents to $11.89.

2002 Agreement

Freddie Mac since 1970 has been exempt from registering its common stock and debt securities with the SEC because of its government-chartered status. The company, under pressure from lawmakers, agreed in 2002 to register its stock, a plan that stalled when Freddie Mac's auditor uncovered $5 billion in accounting errors and forced an overhaul of internal controls.

Fannie Mae registered in March 2003.

The filing will also allow Freddie Mac to move ahead with plans to raise additional capital, which the company put off until it completed the registration process. The SEC still needs to approve the filing.

The companies have already raised $20 billion in the past year to cover losses. Freddie Mac had planned to sell $5.5 billion of stock next month. Because of ``unfriendly'' market conditions, Ofheo isn't pushing Freddie Mac to raise the capital, the UBS analysts said.

Need Capital?

Friedman Billings Ramsey & Co. analyst Paul Miller in Arlington, Virginia, estimates Fannie Mae and Freddie Mac will each need to raise $15 billion. The companies would be ``very prudent'' to raise $10 billion to $15 billion, Barclays Capital analysts including Ajay Rajadhyaksha and Rajiv Setia in New York said in March. The companies don't need to raise capital immediately, Rajadhyaksha, head of U.S. fixed-income at Barclays, said in a telephone interview last week.

Moshe Orenbuch, an analyst at Credit Suisse in New York, estimates Freddie Mac may need $3 billion more after raising $5.5 billion.

Freddie Mac will probably report a bigger surplus above the statutory minimum required for second quarter, according to the filing. The Office of Federal Housing Enterprise Oversight, Freddie Mac's regulator, agreed this year to lower the companies' surplus capital requirement from 20 percent to 10 percent after it registers with the SEC and raises new capital.

Freddie Mac, which also said today it has no plans to cut its dividend, is scheduled to report second-quarter earnings next month.

Minimum Requirements

At the end of March, Freddie Mac had $6 billion more than the minimum required by regulators and Fannie Mae had $5.1 billion more, according to Ofheo data. With Fannie Mae raising an additional $6 billion in May and a reduction by Ofheo in required capital, the company ``had an additional $7.6 billion of capital heading into'' the second quarter, UBS analysts led by Laurie Goodman wrote in a note to clients yesterday.

Based on first quarter data, Fannie Mae's core capital would have to drop by $26 billion and Freddie Mac's by $25 billion before either were declared critically undercapitalized, a classification that would make them subject to being placed in conservatorship, the analysts said.

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

Last Updated: July 18, 2008 09:25 EDT