Freddie Mac ( FRE) swung to a third-quarter loss and said it would lose money in the fourth quarter as well, saying the recent drop in long-term interest rates caused it to lose money on derivatives and guarantee transactions.

The McLean, Va., government-sponsored mortgage company said it lost $550 million for the third quarter, reversing the year-ago $880 million profit. Results reflect a reversal of mark-to-market gains on derivatives and credit guarantee assets and obligations recognized in the first half of the year.

Freddie, which is still working on rebuilding its internal controls and other financial functions after being laid low by a 2003 accounting scandal, said its profit for the first nine months of the year rose to $2.5 billion from $1.4 billion a year earlier.

"While our quarterly results reflect the volatility we see quarter-to-quarter in response to movements in interest rates, we remain encouraged with the underlying progress of Freddie Mac's business," said CEO Richard F. Syron. "We face a challenging market environment due to continued tight spreads. However, our credit guarantee portfolio continues to grow, funding levels remain highly attractive, key interest-rate and credit risk measures are solid and our capital levels are strong."