WASHINGTON • Freddie Mac, troubled giant of the mortgage market, on Wednesday reported continued deterioration of its finances and predicted that home prices will fall further than it previously projected.

Days after the government put in place a federal lifeline for the company, Freddie Mac posted a second-quarter loss that was more than three times larger than Wall Street expected. Stunned investors Wednesday sent Freddie's stock down more than 19 percent to $6.49.

Freddie's financial losses were concentrated in a handful of states - notably California, Florida, Nevada and Arizona - where speculation was rampant, home prices skyrocketed and buyers stretched to the financial limit to afford a home.

Freddie is now reeling from loans - made in 2006 and 2007 as the market turned sour - to borrowers with solid credit but little proof of their incomes, or small or no down payments. These so-called Alt-A loans make up about 10 percent of Freddie's portfolio but accounted for more than half of the company's credit losses in the quarter.

And the pain is nowhere near over. Richard Syron, Freddie Mac's chairman and chief executive, predicted that peak-totrough declines in home prices nationally will average 18 to 20 percent, more than the 15 percent decline the company had been forecasting.

"We now think that we're about halfway through the overall peakto-trough decline," Syron said during a phone briefing for investors and analysts.

Freddie lost $821 million, or $1.63 a share, for the quarter that ended June 30, compared with a profit of $729 million, or 96 cents a share, in the year-ago period. Revenue fell to $1.69 billion from $2.34 billion.

Stock analysts surveyed by Thomson Financial had expected a loss of just 53 cents a share.

A meltdown of investor confidence in Freddie Mac and its rival Fannie Mae last month prompted Congress and the Bush administration to lay the groundwork for a potential taxpayer bailout of the companies. The rescue legislation President Bush signed days ago allows the Treasury to extend unlimited amounts of money to the companies through loans or stock purchases.

Freddie Mac's disclosures Wednesday "if anything increase the likelihood of a government-led capital infusion of the company," and shareholders are "at meaningful risk" of having their stake diluted significantly, said analyst Frederick Cannon of the investment firm Keefe, Bruyette & Woods.

Freddie Mac said that, by regulatory standards, it has an adequate financial cushion. The company said its capital exceeded the government requirement by $2.7 billion. But that was down significantly from the $6 billion surplus estimate it gave three months earlier.

To stay in compliance with the regulatory capital requirement, the company said it plans to reduce the dividend on its common stock in the third quarter from 25 cents to 5 cents or less per share. The company reiterated that, as announced earlier this year, it plans to raise $5.5 billion of additional capital, and it said it may raise more than that. But it gave none of the details that investors have been awaiting as to how or when it would do so.

Raising capital could reduce the risk that the company would require a federal bailout, but it could further erode the company's profitability and water down the value of current shareholders' stock.

Together, Freddie Mac and Fannie Mae hold or guarantee nearly half of outstanding U.S. mortgage debt. Fannie Mae is scheduled to release its second-quarter results Friday.

COLORADO FORECLOSURES

Colorado public trustees Wednesday reported 10,875 foreclosure filings in the second quarter, up 8.6 percent from the same period last year. A report from the Colorado Division of Housing says forecasts suggest that filings may rise 15 percent for the whole year from 2007. The report estimates that through the first half of the year, there was one foreclosure filing per 82 households, with the most significant foreclosure activity on the Front Range.
THE ASSOCIATED PRESS