updated 1/5/2007 5:58:17 PM ET 2007-01-05T22:58:17

Home-mortgage financier Freddie Mac said Friday it expects to report losses for the third and fourth quarters of 2006, citing interest rates declines.

The government-sponsored company, emerging from a multibillion-dollar accounting scandal, forecast a loss of about $550 million for the third quarter, compared with a profit of $880 million in the third quarter of 2005. During the most recent July-September period, long-term interest rates declined by about half a percentage point.

A $550 million loss for the third quarter would be in line with analysts’ expectations. For the fourth quarter, Freddie Mac also expects to report a loss, which company officials did not specify. Financial results remain volatile from quarter to quarter, and likely will continue to be in the future, they said in a conference call with analysts.

Freddie Mac, the second-largest financier of home loans in the U.S., also estimated that its net income would be $2.5 billion for the first nine months of 2006, up from $1.4 billion for the same period in 2005.

Returning to timely reporting of financial results is the company’s highest priority, the officials said. Freddie Mac plans to release results for 2006 before the end of the first quarter as it works to correct problems with internal financial controls and accounting. But the company doesn’t expect to resume regular quarterly reporting of results before the second half of the year.

“While that is in line with our estimate, it seems a disappointment to some investors, as they expected an earlier time frame,” Bank of America analyst Robert Lacoursiere said in a research note.

Freddie Mac’s chairman and chief executive, Richard Syron, said the company is making “good progress.”

“There’s no question we still have a great deal to do, but I’m confident we’re headed in the right direction,” he said.

With the Democrats now in control of Congress, prospects have improved for compromise legislation tightening the government’s reins on Freddie Mac and Fannie Mae, its larger sibling in the $8 trillion home-mortgage market — but not reducing their massive mortgage holdings.

The accounting scandals that roiled both companies brought demands by Republicans in Congress and the Bush administration for cuts in their mortgage portfolios — a move vehemently opposed by Fannie Mae and Freddie Mac.

Rep. Barney Frank, the new chairman of the House Financial Services Committee, is proposing legislation that would not mandate such reductions. It would require the two companies to devote a portion of their profits to financing housing for the poor, an earmark that could add up to hundreds of millions of dollars.

“There does appear to be some movement toward compromise,” Syron said Friday in the conference call.

McLean, Virginia-based Freddie Mac disclosed in June 2003 that it had misstated earnings by some $5 billion — mostly underreported — for 2000-2002 to smooth out volatility in profits and uphold its image on Wall Street as a steady performer.

The accounting crisis brought the ouster of Freddie Mac’s then-chairman and chief executive Leland Brendsel, president David Glenn and chief financial officer Vaughn Clarke. The company paid a then-record $125 million civil fine in 2003 in a settlement with federal regulators, who blamed management misconduct for the faulty accounting.

Freddie Mac and Fannie Mae were created by Congress. Their mandate is to pump money into the mortgage market by buying home loans from banks and other lenders, in order to keep interest rates low and make home ownership affordable for low- and moderate-income people. They bundle the mortgages into securities for sale on Wall Street.

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