NEW YORK, US (Reuters) - Freddie Mac (FRE.N) (FRE.P), the second largest provider of U.S. residential mortgage funding, on Friday posted a loss of US$5 billion in the third quarter and predicted it would need more government support amid a "prolonged deterioration" in housing.

Increases in the value of securities Freddie Mac held over the period helped buoy its net worth, however, erasing its need to tap government funds for a second straight quarter to stay solvent while continuing to buy and guarantee home loans.

Including a US$1.3 billion dividend payment on senior preferred stock bought by the Treasury in previous quarters, Freddie Mac's third-quarter loss increases to US$6.3 billion.

The home funding company's loss comes amid a rise in provisions for credit losses to US$7.6 billion in the quarter, up 46 percent compared with the previous quarter, as delinquencies worsened on loans it guarantees. Provisions will remain high this quarter, it added.

"I would say we are just beginning to see the impact of the chargeoffs on their guarantee book," said Janaki Rao, vice president of mortgage research at Morgan Stanley in New York.

Its larger rival Fannie Mae (FNM.N) (FNM.P) on Thursday said it would need US$15 billion from the U.S. Treasury after a whopping US$18.9 billion third-quarter loss.

Results at Freddie Mac and Fannie Mae are widely watched as a barometer of the U.S. housing market since they own or back nearly half of outstanding mortgages.

The losses have presented a dilemma to Congress as it wants to protect taxpayers' money but is also counting on the companies to undertake foreclosure prevention efforts which are significantly adding to expenses.

In order to ease the terms of loans under the Obama administration's Making Home Affordable refinancing program, the companies must buy the mortgages out of securities, and write down their value. Seeking alternatives to foreclosures also means bad loans sit on their books longer.

Despite signs of recovery in home sales and prices, rising delinquencies and unemployment levels mean the housing market is still fragile, Freddie said. High unemployment, foreclosures and excess inventory will impede the recovery "for some time" and push house prices lower, the company said.

This means that Freddie Mac's survival will continue to depend on support from the government, which forced the company and Fannie Mae into conservatorship in September 2008.

Freddie Mac has taken US$51.7 billion since then while Fannie Mae's draw will rise to US$60.9 billion.

For Freddie Mac, "the positive net worth without the help from the Treasury is significant, but it is too early to say whether an end to conservatorship is ahead," Rao said.

Starting in 2010, the company will begin accounting for US$1.8 trillion in mortgage-backed securities it guarantees on its balance sheet to meet new guidelines. This will increase interest income and interest expenses, and could have a significant negative impact on net worth, it said.

Shares of Freddie Mac were flat at US$1.23 in light after-hours trading following the results.