Fannie Mae cuts dividend

WASHINGTON -- Mortgage finance giant Fannie Mae on Tuesday announced it was cutting its dividend 30 percent and selling $7 billion in special stock to raise additional capital.

The government-sponsored company said it was slicing its dividend to 35 cents a share starting in the first quarter of next year and issuing $7 billion in preferred stock this month to cushion against losses in lower-quality mortgages.

Fannie Mae, which finances or guarantees one of every five home loans in the U.S., last month reported a third-quarter loss of $1.4 billion while forecasting housing market woes through next year because of mounting home loan delinquencies.

The stock sale "will provide the company with additional capital to conservatively manage increased risk in the housing and credit markets, help meet its mission of providing affordability, liquidity and stability, and free up capital to pursue emerging growth opportunities," Fannie Mae said in a statement.

The action follows similar moves recently by Freddie Mac, its smaller government-sponsored rival in the $11 trillion home-mortgage market, which posted a $2 billion loss in the third quarter.

The company said Tuesday it believes the continuing turmoil in the housing and credit markets and anticipated further declines in home prices will "negatively affect" its financial condition and results next year.

Fannie Mae shares, already down $1.07 or nearly 3 percent in trading Tuesday, dropped to $33.88, losing $1.30, or 3.7 percent in after-hours trading. The company made the announcement after the close of trading.