Shares of Freddie Mac fell as much as 9.5 percent on Wednesday after analysts slashed their price targets on the stock, saying an unexpectedly wide third-quarter loss may make it tough for the No. 2 U.S. home funding company to inject the liquidity needed to rescue an ailing housing market.

Goldman Sachs analyst James Fotheringham cut his price target on Freddie by two-thirds to $24, lowered his earnings estimates and said the company might face a further decline in the fair value of net assets in coming quarters.

Freddie Mac will need to raise significant capital in order to continue its much-needed contribution to U.S. mortgage market liquidity, Fotheringham wrote in a research note.

He also said Freddie's funding costs have risen due to capital uncertainty and pose a potential threat to a key aspect of the GSE business model.

Government-sponsored enterprises Fannie Mae, the largest U.S. home funding company, and Freddie Mac have been hit by mounting losses as home foreclosures continue to climb and the credit crisis drains the value of mortgages they own.

Bear Stearns analyst David Hochstim cut his price target on Fannie Mae from $75 to $70. Fannie Mae fell nearly 1 percent on Wednesday.

On Tuesday, Freddie Mac reported a $2 billion net loss for the third quarter and said it might slash dividends by 50 percent or use other means to boost its capital as the downturn in the housing market worsens.

Shares of the company lost more than a quarter of their value and touched an 11-year low on Tuesday.

Credit Suisse analyst Moshe Orenbuch cut his price target on Freddie Mac to $27 from $45 to reflect the company's limited capital flexibility.

The brokerage on Monday estimated that Freddie Mac may lose between $1 billion and $5 billion on its subprime AAA portfolio.

Both analysts maintained their neutral rating on the stock, while Citigroup analyst Bradley Ball, who cut his price target to $60 from $81, maintained his buy rating..

Paul Miller, an analyst with Friedman, Billings, Ramsay, who downgraded Freddie to underperform from market perform and slashed his price target to $20 from $55 on Tuesday, said he expects the company to raise up to $5 billion but is unclear on how and in what form it will raise capital.

The company's valuation will continue to come under pressure until credit costs and capital levels stabilize, Miller said.

Freddie shares, which are down nearly 60 percent this year, were trading at $25.68, down 4 percent, on the New York Stock Exchange. Fannie Mae shares, also down about 54 percent this year on slumping home prices and tighter credit conditions, were traded at $27.88, down 37 cents, or 1.3 percent. The KBW Mortgage Finance Index has fallen 48 percent over the same period.

(Reporting by Anupreeta Das in New York and Nivedita Gupta in Bangalore; Editing by Steve Orlofsky and Vinu Pilakkott)

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