As Fannie Mae prepares for further drops in the housing and credit markets, the company said on Tuesday it will cut its dividends by 30 percent and sell $7 billion of preferred stock to increase capital.

Fannie Mae, the top provider of U.S home loans said it will cut its quarterly common stock dividend beginning in the first quarter of 2008, to $0.35 per share. The company plans to issue preferred stock later this month. It said in a statement that these decisions will help the company maintain a solid capital position through 2008.

Fannie Mae has a responsibility to serve the mortgage market in good times and in times like these, Daniel Mudd, Fannie Mae's chief executive officer said. The steps we are taking today are designed to enable us to meet that responsibility.

The Washington-based Government Sponsored Enterprise said last month it had a capital of $2.3 billion after reporting a quarterly loss of $1.4 billion.

The slumping housing market has sapped funds from mortgage lenders, banks and securities firms, some of which are turning to outside sources for cash.

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