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 US 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 $1.11, or about 11 percent, to $8.84 in premarket trading.

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 per cent 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.

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.