Moody's may cut Freddie Mac's rating

Freddie Mac, the mortgage-finance company that reported its biggest loss last quarter, may be downgraded by Moody's Investors Service because the damage from loan defaults could be worse than the ratings company expected.

Moody's said it may lower Freddie's financial strength rating from A-, the second-highest grade.

The McLean, Virginia- based company's top Aaa senior long-term debt rating and the Prime-1 rating for its commercial paper or short-term IOUs won't be cut, Moody's said.

Chief Executive Officer Richard Syron has attempted to shore up Freddie Mac's finances by selling $6 billion of preferred stock, slicing its dividend in half and reducing its mortgage assets by $30.9 billion to $701.4 billion in the three months to November 30.

The government-chartered company may need to take similar steps again, Moody's said.

Freddie Mac "may experience higher credit losses than Moody's previous expectations," Moody's analysts led by Brian L. Harris in New York said in the report late yesterday.

"In its review, Moody's will focus on Freddie Mac's asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term."