Fannie Mae reports $2.2 billion loss in first quarter and warns of "severe weakness" in market

WASHINGTON (AP) -- Fannie Mae said Tuesday it lost $2.2 billion in the first quarter as home-loan delinquencies mounted and home prices declined more sharply than the mortgage finance company had expected.

The company said it expects "severe weakness" in the housing market to continue this year, bringing increased mortgage defaults and foreclosures.

Fannie Mae, the largest U.S. buyer and backer of home loans, said it would raise $6 billion by selling new stock. The company will cut its dividend, starting in the third quarter, to 25 cents a share, to generate around $390 million a year.

Fannie Mae's first-quarter loss contrasts with a profit of $961 million in the January-through-March period last year. Fannie Mae reported on Tuesday that the early 2008 loss was equivalent to $2.57 a share. It earned 85 cents a share a year earlier.

Thomson Financial said Wall Street analysts had expected the government-sponsored company to lose 81 cents a share in the latest period. Washington-based Fannie Mae was forced to set aside billions to account for bad loans.

Shares tumbled nearly 11 percent, or $3.04, to $25.25 in premarket trading.

A small pull back will happened this week on the US market.

Overall trend will still be up though.