Despite Fannie's declining financials – this is the fourthconsecutive quarterly loss for the GSE – its net loss for Q2 stillsurpassed the range the Street had been expecting: namely a lossbetween 68 cents a share to 97 cents per share. The news, notsurprisingly, set Fannie Mae's shares plummeting Friday morning bynearly 20% at one point, reaching $8.13 per share.

Fannie is developing a track record of larger than expectedlosses, Frederic Ruffy, the senior options strategist atWhatsTrading.com, a New York City-based provider of options marketanalysis, tells GlobeSt.com. "In the previous two quarters, thecompany missed badly. Last quarter, Fannie lost $2.57 per share,compared to analyst estimates for a loss of 81 cents. It suffered aloss of $3.80 per share before that, well below analyst estimatesof -$1.24."

Fannie Mae has said it will cut its dividend 86%, to 5 cents ashare, from 35 cents a share. It will also slash operating costs by10%. It blamed its Q2 performance on an increase in the provisionfor credit losses that more than offset higher revenue and fairvalue gains. "Volatility and disruptions in the capital marketsbecame even more pronounced in July, CEO and president Daniel Muddsaid in a prepared statement. "In addition, credit performance hascontinued to deteriorate and, based on our experience in July, weanticipate further increases in our combined loss reserves. Giventhis volatility and the build-up of our reserve, as well as theuncertainties inherent in the US economy and the housing market, weare taking a series of additional actions that reflect our ongoingfocus on conserving and enhancing our capital, as well as managingour credit risk through the balance of this cycle."