Fannie Mae posts third straight loss

Fannie Mae posted a massive quarterly loss, its third straight, on the protracted U.S. housing market slump, prompting it to slash its dividend and set plans to raise $6 billion of fresh funds.

Still, executives of the largest U.S. provider of home financing expressed optimism Tuesday that the worst of the credit turmoil that erupted from the housing crisis might have passed.

Their comments triggered an 8.9% rise in Fannie Mae shares and supported a wider advance in U.S. stocks.

The stock had initially fallen on the deeper-than-expected quarterly loss and credit-related expenses. Fannie Mae posted a net loss, after payment of preferred dividends, of $2.51 billion, or $2.57 a share, for the first quarter, according to a regulatory filing.

Before preferred dividends, it posted a loss of $2.19 billion.

The loss was greater than even the most pessimistic forecast and came on the heels of a record $3.6-billion loss in the fourth quarter of 2007.

In last year’s first quarter, just before the slump in the housing market torpedoed mortgage and credit markets, Washington-based Fannie Mae posted a profit, after preferred dividend payments, of $826 million, or 85 cents a share.

Fannie Mae’s latest quarterly loss and its need to raise capital reflect the plight of financial services companies worldwide, which have written off more than $330 billion in soured mortgage securities and raised more than $200 billion to shore up depleted balance sheets. Swiss bank UBS reported an $11-billion quarterly loss Tuesday and said it would cut 5,500 jobs, many of which will come from the bank’s investment division.

Market sentiment turned when Fannie Mae executives emphasized that the quality of the mortgages the company was buying had improved and its fee structure now better reflected market risk.

Fannie Mae and its sister company Freddie Mac provide capital to U.S. mortgage markets by buying loans originated by banks and other lenders.

After Fannie Mae announced its capital-raising plans, its regulator, the Office of Federal Housing Enterprise Oversight, said it intended to reduce the amount of surplus capital the company needed to hold, which further boosted optimism about the company’s ability to expand its holdings of relatively cheap mortgage assets and restore profitability.

Shares of Fannie Mae closed up $2.52 at $30.81 after trading as low as $26.25 earlier.