Mortgage finance company Fannie Mae swung to a second-quarter loss that was more than triple what Wall Street expected as conditions in the housing market continued to deteriorate.

The Washington-based company, the largest U.S. buyer and backer of home loans, said Friday it lost $2.3 billion, or $2.54 a share, for the quarter that ended June 30. The loss compares with profit of $1.95 billion, or $1.86 a share, in the period last year.

Analysts surveyed by Thomson Financial had expected a loss of just 68 cents a share.

And it appears more bad news is ahead.

"Volatility and disruptions in the capital markets became even more pronounced in July," Daniel H. Mudd, president and chief executive officer, said in a statement. "In addition, credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves."

Shares fell $1.28 or 12.9% as of 9:35AM in New York. 

To preserve cash, Fannie Mae slashed its dividend to 5 cents a share from 35 cents a share. The move is expected to preserve $1.9 billion in capital through 2009.

The company also said it would hike fees, cut operating costs by 10% by the end of next year and stop purchasing so-called Alt-A loans, made to borrowers with solid credit but little proof of their income, or small or no down payments.

Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, hold or guarantee nearly half of outstanding U.S. mortgage debt.

While the two companies generally had higher standards for lending than the subprime mortgage companies that started to go belly-up last year, they lowered their lending standards during the housing boom and bought securities linked to riskier loans.

Freddie Mac on Wednesday wrote down the value of those investments by $1 billion and set aside $2.5 billion for losses from soaring delinquencies and foreclosures while posting a loss of $821 million for the quarter.

Worries that Fannie and Freddie will be unable to absorb such losses caused the government to step in last month. Under the housing bill signed by President Bush last week, the government may boost increase lines of credit to Fannie and Freddie or buy their stock.

However, Mudd has said his company is financially strong and "very unlikely" to need a government cash infusion.