Freddie Mac’s (FRE) results undercut any hope that things at the quasi-governmental agency would get better soon. Actually, they were an indication that the Treasury will have to get into the act sooner and not later.

The firm posted a net loss of $821 million for the quarter ended June 30, 2008, compared to net income of $729 million in the same period last year.

Freddie Mac said it remain committed to raising $5.5 billion of new capital and will evaluate raising capital beyond that amount depending on the market. That means things will get worse and the $5.5 billion will not be enough.

Freddie Mac’s provision for credit losses hit $2.5 billion. The company cut its dividend to $.05 from $.25.

While the numbers from Freddie Mac were a tiny bit better than expected, they were not good enough to give any indication that the worst of the housing crisis or its impact on FRE earnings are improving at all. As a matter for fact, most of the news about housing which has come out since Freddie Mac closed its quarter June 30 has been disheartening. Foreclosures and delinquencies are rising.

Freddie Mac’s third quarter could well be worse than the one just past.

Estimates that the government will have to put $25 billion into Freddie Mac and Fannie Mae (FNM) still seem plausible. Paulson and his associates can do the math and know that home prices will decline well into 2009.

Freddie Mac may have cut its dividend, but that saves a tiny fraction of what it will need to stay in business.

Douglas A. McIntyre

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