Struggling home finance giant Fannie Mae Friday reported a massive second-quarter loss of 2.3 billion dollars, more than three times analysts' estimates, and plans to slash its dividend.

Fannie Mae said the results were driven primarily by an increase in the provision for credit losses in the worst housing crisis in more than seven decades.

The loss per share of 2.54 dollars was more than three times uglier than most analysts' forecasts of 69 cents. The company had a net loss of 2.2 billion dollars in the first quarter.

The government-sponsored, shareholder-owned company and its twin Freddie Mac underpin about half the US housing market, which has been in freefall since early 2006 after the collapse of a speculative boom fed by easy credit.

The federal government threw a financial lifeline last week to the two government-sponsored enterprises (GSEs), whose stocks have plummeted as investors worry about their solvency.

The government rescue could cost US taxpayers 25 billion dollars in the next two fiscal years, according to the Congressional Budget Office.

The scale of Fannie Mae's mounting losses was in line with twin Freddie Mac, which also reported a second-quarter loss more than triple market expectations, at 821 million dollars.

Daniel Mudd, president and chief executive of Fannie Mae, painted a gruesome picture of the current meltdown and sought to reassure investors that the company was up to its government-sponsored role.

"Our second-quarter results reflect challenging conditions in the housing and mortgage markets that began in 2006 and have deepened through 2007 and 2008," Mudd said in a statement.

"Fannie Mae is providing stability and liquidity to the housing market in the United States, and we will continue to play a key role as the market recovers from this cycle."

Given the increased volatility in the capital markets and deteriorating credit conditions the company has experienced in July, he said, "we anticipate further increases in our combined loss reserves.

Mudd said the company was taking additional steps to conserve and enhance capital and manage risk, including a plan to slash the third-quarter dividend by 86 percent, from 35 cents to five cents, to preserve 1.9 billion dollars in capital through 2009.

Other measures include reducing annual operating costs by 10 percent by the end of 2009 and eliminating by December 31 the acquisition of newly-originated higher-risk Alt-A loans that have been a key source of losses.

The company said it continues to expect home price declines in 2008 to be within a range between 7.0 and 9.0 percent, and peak-to-trough home price declines of 15 to 19 percent.

The market trend was "moving toward the high end of those ranges," it said.