Deteriorating conditions in the U.S. housing market contributed to a larger-than-expected first quarterly loss from U.S. mortgage giant FNMA (Fannie Mae) on Tuesday morning, which reported a loss per share of $2.57 or net losses of $2.2 billion.

The street had estimated a loss of $0.81 per share.

The company also warned that credit losses would probably be larger in 2009 than in 2008 as it announced plans to raise $6.0 billion in capital using preferred stock options.

Fannie Mae also announced plans to cut its quarterly dividends to $0.25 per share from $0.35 at the beginning of Q3.

Futures contracts on the Dow Jones industrial average declined about 40 points in the minutes following the announcement as shares of Fannie Mae plummeted.

Rating agency Moody's subsequently affirmed Fannie Mae's AAA debt rating but downgraded its financial strength to B from B+. Moody's also put a negative outlook on Fannie's B BFSR and Aa3 preferred stock ratings.

"Moody's analyzed stress cases that would result in Fannie Mae reporting a net loss in 2008. Our current ratings incorporate a stress case net loss of up to $8 billion this year," said Moody's Senior Vice President Brian Harris in a press release.

Moody's also said it expects Fannie Mae to meet its regulatory capital requirement despite the weaker outlook.

By Erik Kevin Franco and edited by Nancy Girgis

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