Feb. 28 (Bloomberg) -- Freddie Mac, the second-largest mortgage-finance company, posted a record $2.45 billion fourth- quarter loss as rising defaults sent credit costs soaring.

The net loss, which amounted to $3.97 a share, widened from $401 million, or 73 cents, a year earlier, the McLean, Virginia- based company said in a statement today. Freddie Mac, one of two government-chartered companies that buy and guarantee home loans, predicted in December that results would be similar to its $2 billion third-quarter loss.

Freddie Mac and Fannie Mae, which account for 45 percent of the $11.5 trillion home loan market, are posting their biggest- ever losses as bank foreclosures almost double and delinquencies rise to the highest since 1987. Freddie Mac Chief Executive Officer Richard Syron said the company remains ``extremely cautious'' for 2008 and later told investors on a conference call that there is enough capital ``to weather the downturn.''

``There will be a lot of bumps ahead,'' David Dreman, chairman of Dreman Value Management LLC in Jersey City, New Jersey, which owns Fannie Mae and Freddie Mac shares, said in a telephone interview. ``This financial crisis will take some to settle down. But if we look back two or three years from now, we will see some pretty good performance in these stocks,'' he said.

Freddie Mac, which has lost about 62 percent of its market value in the past year, fell 60 cents to $24.49 today in New York Stock Exchange composite trading. Fannie Mae rose 63 cents to $27.90 and is down about 51 percent in the past year.

``No one knows how long the housing downturn will be,'' Syron, 64, said on the call. The market's collapse is ``totally unprecedented in our lifetimes'' and home prices have fallen only about a third of their total probable decline, he said.

Room to Maneuver

The quarter included writedowns and other non-interest costs of $2.1 billion primarily related to derivatives contracts, and $912 million of credit expenses. Credit losses will rise to $2.2 billion in 2008 and $2.9 billion in 2009, Freddie Mac said.

Mortgage defaults forced Syron to shore up Freddie Mac's finances by selling $6 billion of preferred stock in November, slicing the dividend 50 percent and reducing mortgage assets by 4 percent to $701.4 billion in the three months ended Nov. 30.

``Freddie's ability to maneuver in 2008 is severely limited after fourth quarter results ate through almost one-half the preferred capital raised during the period,'' Jim Vogel, head of agency debt research at FTN Financial in Memphis, Tennessee, wrote in a note today to clients.

The company began 2008 with $4.5 billion above the 30 percent excess capital requirement set by its regulator, Chief Financial Officer Anthony Piszel said in an interview.

``We believe we raised sufficient capital to get through 2008, assuming no further severe market downturns,'' he said.

Portfolio Caps

Regulators tried to provide a boost yesterday, removing limits on the combined $1.5 trillion mortgage portfolios of Fannie Mae and Freddie Mac, enabling the companies to increase financing for the slumping housing market.

Freddie Mac's guarantee income will rise 10 percent this year, Piszel said.

Fannie Mae yesterday posted a record net loss of $3.55 billion for the fourth quarter and increased its forecast for credit losses. Moody's Investors Service said it may cut Fannie Mae's financial strength rating because the losses are eroding the company's capital. Moody's is also reviewing Freddie Mac.

The cost to protect Freddie Mac senior bonds against default rose. Freddie Mac credit-default swaps climbed 4 basis points to about 79 basis points as of 2:35 p.m., according to broker Phoenix Partners Group. Fannie Mae increased the same.

Sell Recommendations

Goldman, Sachs & Co. and Merrill Lynch & Co. this month recommended investors sell Freddie Mac and Fannie Mae shares, citing their vulnerability to a surge in foreclosures.

Created by Congress to boost homeownership, Fannie Mae and Freddie Mac profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities. They record losses when defaults rise.

Freddie Mac warned investors in December that fourth-quarter losses would resemble the third-quarter as the company's default rate rose to as high as 3.5 percent, the worst since 1991.

Bank seizures of U.S. homes almost rose 90 percent to 45,327 last month from the a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent. More than 233,000 properties were in some stage of default last month, RealtyTrac said in a statement yesterday.

No Relief

``Right now I see no relief'' for the housing sector, said Michael Mullaney, who helps oversee $10 billion in assets at Fiduciary Trust Co. in Boston. Mullaney has said Fiduciary is avoiding Freddie Mac and Fannie Mae shares and only holds the stocks in some of its index portfolios.

Moody's said today it is continuing to review Freddie Mac's financial strength rating of A-, the second-highest grade, because of ``significant deterioration of surplus regulatory capital.'' All other ratings were affirmed with a stable outlook.

The New York-based rating company's financial strength rating measures the likelihood a company will need assistance from a third party, such as the government or shareholders.

To contact the reporter for this story: James Tyson in Washington at jtyson@bloomberg.net;

Last Updated: February 28, 2008 16:11 EST