Third loss for US mortgage giant

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US mortgage giant Fannie Mae has posted a third consecutive loss and warned the US housing market slump will persist into next year.

The company made a net loss of $2.19bn (£1.1bn) in the first three months of 2008 after a record $3.6bn loss in the fourth quarter.

The news sent Fannie Mae shares and the wider stock market lower.

To strengthen its finances, the firm said it would cut its dividend and raise $6bn by selling shares.

"The additional capital we're raising will... allow us to maintain a strong, conservative balance sheet through the housing market correction," said the firm's president and chief executive, Daniel H Mudd .

Fannie Mae is the largest buyer and guarantor of US mortgages, accounting for at least one in five home loans nationwide.

The firm, together with Freddie Mac, was created by the US government to make it easier for more people to get on the housing ladder.

They were later privatised, but are still known as government-sponsored enterprises and are able to borrow at a lower rate of interest, because bond markets believe that they would not be allowed to go bankrupt.

The firm, together with Freddie Mac, were created by the US government to make it easier for more people to get on the housing ladder.

As many private sector banks look to reduce their mortgage business, the US government has increasingly looked to Fannie Mae and Freddie Mac to step up and help restore stability to the market.

"This is likely to be the story for the months ahead - a painful cure from the housing correction - and incredibly healthy opportunities from our resurgent role at the centre of the recovery," Mr Mudd said.