Freddie Mac, the American government-chartered mortgage financing giant, plans to cut its dividend by at least 80 per cent after a $3.5 billion (£1.79 billion) hit from the credit crunch pushed it four times as far into the red for the second quarter as the market had forecast.

The company which, along with Fannie Mae, guarantees about $5 trillion (£2.5 trillion), or nearly half of all US mortgages, recorded an $821 million loss in the three months to June 30, down from a $729 million profit for the same period last year. The second-quarter loss equates to $1.63 a share and compares with a consensus analyst forecast of 41 cents a share.

Freddie, whose revenues fell 28 per cent to $1.69 billion, suffered a $2.5 billion writedown relating to expected losses on its mortgage portfolio and a further $1 billion on the home-loan-backed assets it owns. Its shares, which had already fallen by 7 per cent this year, slipped a further 14.4 per cent in midday trading in New York yesterday, down $1.16 to $6.70.

The losses were worse than analysts had expected after credit related expenses doubled to $2.8 billion and the company wrote off £1 billion on the value of sub-prime mortgages.

Freddie Mac also reaffirmed its intention to raise $5.5 billion in additional capital but provided no immediate details of how it would do so.

Richard Syron, chief executive at Freddie Mac, said: “We remain committed to raising $5.5 billion of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate.”

Freddie Mac will cut its quarterly dividend by 80 per cent from 25 cents a share to 5 cents a share.

The company, which has projected credit losses of $2.2 billion for this year, said revenue rose by more than 10 per cent from the first quarter to $1.69 billion, including a increase of 92 per cent in net interest income to $1.5 billion.

The companies have faced a wave of share selling as investors speculated that they would fall short of the capital needed to offset losses sustained from delinquent mortgages.

The turmoil led Henry Paulson, the US Treasury Secretary, to arrange emergency measures that bolstered government backing for the companies.

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