Nov. 6 (Bloomberg) -- Freddie Mac, the mortgage-finance company in government conservatorship, posted a narrower $5 billion third-quarter loss and said it has no immediate need for more U.S. Treasury aid as the value of its securities improved.

The loss narrowed from a record $25.3 billion loss a year earlier, the McLean, Virginia-based company said in a filing today with the Securities and Exchange Commission. Freddie Mac, which buys mortgages and guarantees home-loan securities, had recorded $63.6 billion in net losses over the seven quarters ended in March amid a three-year housing slump.

Freddie Mac, which has tapped $50.7 billion in government capital since November 2008, said that while there have been “some positive housing market developments,” the company may need additional Treasury aid in future quarters.

“Factors like high unemployment, excess inventory and rising foreclosures will continue to impede a full recovery for some time and put further downward pressure on house prices,” Freddie Mac Chief Executive Officer Charles Haldeman said in a statement. “We expect to request additional funds from Treasury as this prolonged deterioration of market conditions continues to negatively impact our financial results.”

Freddie Mac’s draws from the Treasury carry a 10 percent annual dividend of about $5.2 billion, according to today’s regulatory filing. The amount exceeds the company’s annual historical earnings in most periods and “could contribute to the need for additional draws from Treasury,” Freddie Mac said.

Freddie Mac shares, which peaked at $73.70 in December 2004, closed today at $1.23 in New York Stock Exchange composite trading. Larger rival Fannie Mae closed at $1.04.

Housing Market

Freddie Mac in the second quarter had posted a surprise profit of $768 million attributable partly to one-time accounting adjustments and mark-to-market gains. Losses are likely to grow with rising unemployment and costs to implement President Barack Obama’s housing plans, the company said.

The slump in housing prices is unlikely to end before the middle of next year, and statistics portraying rising values are misleading, according to Pacific Investment Management Co. A record 2.6 million defaults, scheduled foreclosure auctions or bank repossessions occurred in the first nine months of the year, 22 percent more than a year earlier, as unemployment rates climbed and temporary programs delaying foreclosures expired, Irvine, California-based data company RealtyTrac Inc. said.

Freddie Mac and Fannie Mae own or guarantee almost half of the U.S. residential mortgage debt. They were chartered by the government -- and later sold to shareholders -- primarily to lower the cost of homeownership. The companies buy mortgages from lenders, freeing up cash at banks to make more loans. They profit on the difference between their cost of borrowing and the yields on the debt they purchase. They also guarantee and package loans as securities for a fee.

Treasury Aid

Freddie Mac’s Treasury borrowings drove third-quarter earnings per share to a loss of $1.94, after the company made a $1.3 billion dividend payment.

Larger rival Fannie Mae reported an $18.9 billion loss yesterday and said it needs $15 billion in federal aid. The results brought Washington-based Fannie Mae’s total losses over the past nine quarters to $120.5 billion and its total requested draws on Treasury funds to $59.9 billion.

Fannie Mae said yesterday that any profit it does make would be eaten up by $6.1 billion in annual dividend payments owed on the Treasury borrowings, a cost that exceeded its annual net income for five of the past seven years.

Credit Quality

Freddie Mac and Fannie Mae have survived on $200 billion each in emergency financing pledged by the Treasury after regulators put the two in conservatorship in September 2008. The Treasury makes the payments through preferred stock purchases when the value of the companies assets drop below the amount owed on their obligations.

The credit quality of loans and mortgage bonds that Freddie Mac owns or guarantees have continued to deteriorate as a recession that began in December 2007 pushed more homeowners into foreclosure.

Freddie Mac said today its net worth, or the difference between assets and liabilities, was $10.4 billion, compared with $8.2 billion in the second quarter. The increase reflected unrealized gains on the company’s mortgage bond holdings because of lower interest rates and improved funding costs, Freddie Mac said.

The company took a $7.5 billion provision for credit losses and expenses, compared with $5.2 billion in the second quarter, according to the filing today.

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

Last Updated: November 6, 2009 17:42 EST