Citing accounting associated with derivatives it used to hedgeits operations, Freddie Mac announced a loss of hundreds of millions of dollarsin the third quarter of 2015 Tuesday.

According to the announcement, the government-sponsoredenterprise that shares the secondary mortgage market with FannieMae lost a net $475 million in the third quarter. That compared toa net income of $4.2 billion in the previous quarter.

Fannie Mae scheduled its earnings announcement for Nov. 5.

“For the first time in four years, Freddie Mac had a net loss inthe most recent quarter,” Freddie Mac CEO Donald Layton said. “This $0.5 billion loss wascaused mainly by the accounting associated with our use ofderivatives, whereby the derivatives are marked to market but manyof the assets and liabilities being hedged are not. The resultingdifference between GAAP reporting and the actual underlyingeconomics, which has created significant GAAP income volatility inour quarterly financial statements, reduced the after tax earningsin the quarter by an estimated $1.5 billion as interest ratesdeclined significantly.”

Layton pointed out the pendulum had swung in the other directionin the second quarter.

“In the prior quarter, we had the opposite result with a $1.5billion positive contribution to earnings as rates rosesignificantly,” he said.

Layton said the losses did not reflect the strong fundamentalshe said characterize the company's core business. He alsoemphasized the losses represented only a small slice of thecompany's $1.8 billion in reserves and that the U.S. government hasmade a profit on the firm.

“Finally, as this loss was just a fraction of the $1.8 billionnet worth reserve we have under the Preferred Stock PurchaseAgreement, no U.S. Treasury draw was needed, so total dividendspaid remains unchanged at $96.5 billion, $25 billion more than wehave received,” he said.

However, Rep. Ed Royce (R-Calif.) took a dim view of the news anddeclared the loss signaled the two GSEs were endangering taxpayerfunds again.

“Losses like this combined with multimillion dollar CEO salariesat the GSEs are the warning shots of a return to the pre-crisismodel of private gains and public losses that wrecked the economy,”Royce said. “We can't simply put the blinders on and say thatFannie and Freddie are just like other companies when taxpayers areon the hook if they go in the red.”

Royce sponsored a measure that would roll back CEO salaries atFannie Mae and Freddie Mac to their prior levels. The HouseFinancial Services Committee approved the bill by a 57-1 vote inlate July and the full House may take it up later this month,according to the congressman.