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Freddie Mac , the second-largest provider of U.S. residential mortgage funding, on Wednesday said a faltering housing market resulted in a $4.1-billion third-quarter net loss and another draw from the Treasury to maintain positive net worth.

Freddie Mac in a quarterly regulatory filing also warned it may face significant costs related to snags in the foreclosure processes at major loan-servicing companies.

Freddie Mac's third-quarter loss included a $1.6-billion dividend payment on senior preferred stock purchased by the Treasury since the financial crisis and housing slump pushed the mortgage buyer into conservatorship in late 2008. Its quarterly loss narrowed from $6-billion in the previous three-month period.

It has requested $100-million from Treasury under its preferred stock purchase agreement, which would increase taxpayer outlays so far to $64.2-billion.

"As we near the end of 2010, the housing market remains fragile and has recently come under renewed pressure from slowing economic growth, weaker employment and foreclosure uncertainties," Freddie Mac chief executive officer Charles Haldeman said in a statement.

"We believe that it will be a considerable time until the housing market has a sustained recovery," he added.

Freddie Mac's struggle to put losses on loans originated during the housing boom behind it have been challenged by a sputtering economy, and fresh problems in clearing the backlog of delinquent borrowers and the homes they leave behind through foreclosure.

Mortgage companies including GMAC Mortgage and Bank of America Corp in recent weeks temporarily suspended some foreclosures as signs of shoddy paperwork put a spotlight on how companies were handling the flood of bad loans. The errors have drawn sharp criticism from federal lawmakers as well as states' attorneys general, who have opened an industry probe.

Delays in selling repossessed properties raise Freddie Mac's costs of carrying the homes, while the expenses tied to fixing faulty servicing may also rise, it said.

The inventory of homes owned by Freddie Mac increased 66 per cent in the first nine months of the year to 74,910 properties as homeowners could not get their loans modified or sell their homes.

At the same time, acquisitions of foreclosed properties may slow due to problems at loan servicers, it said.

Expenses on Freddie Mac's portfolio of homes it owns through foreclosure increased to $337-million from income of $40-million in the previous quarter.

"In cases where foreclosure is unavoidable, we are working with the industry to protect the integrity of the foreclosure process," the company said in its statement.

Freddie Mac also expressed frustration with servicers and lenders that have failed to answer demands to repurchase faulty loans in a "timely manner." Nearly a third of the $5.6-billion in requests to repurchase loans that did not meet underwriting standards were outstanding more than four months, it said.

Credit loss provisions for the McLean, Virginia-based company were little changed at $3.7-billion after factoring for an accounting adjustment.

The housing market has grown increasingly reliant on funding from Freddie Mac and rival Fannie Mae, with both reporting improvements in the quality of loans they guarantee. Lawmakers plan to reform their taxpayer-supported status, but are loathe to undo government ties with the housing market weak and as private investors remain skittish of offering financing to homeowners.

Mr. Haldeman told mortgage bankers at a conference last week that he doubted the U.S. housing market would be strong enough this time next year for a pullback in government support.

Freddie Mac said it would likely continue to rely on its credit line from the Treasury, but that its costs of obtaining that aid were rising. It has paid $8.4-billion in dividends to Treasury, or 13 per cent of its capital draw.

Net interest income rose to $4.3-billion last quarter, up from $4.1-billion, it said, which was offset by the credit losses and a $1.1-billion derivative loss.

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