Fannie Mae, the largest U.S. mortgage finance company, revealed additional troubles from the U.S. housing downturn as it lost $2.2 billion in the first three months of the year.

The Washington-based firm also said it would cut its dividend to investors and raise $6 billion by selling stock.

Shares of the company fell sharply at the start of trading, but recovered to post gains after a regulator loosened restrictions on the firm, enabling it to buy more home loans.

Fannie Mae stock rose 77 cents, or 2.7 percent to $29.06 in late morning trading on the New York Stock Exchange.

The Washington-based company said it lost $2.19 billion, or $2.57 per share, compared to a net income of $961. million, or 85 cents a year-earlier. Analysts had expected the company would lose 81 cents. Revenue grew 38 percent, to $3.78. Analysts expected revenue of $1.26 billion.

The company said today it will sell $4 billion in common and convertible preferred shares, a move to strengthen the company's balance sheet. Shareholders will also be receiving less income as the company cut its dividend from 25 cents per share from 35 cents.

In today's report, Fannie Mae said the value of its holdings has took a steep plunge during the last six months, as the housing and credit crises have continued to hurt its finances.

Fannie Mae and Freddie Mac, which also buys home loans, are a pair firms created by the U.S. government to boost the purchases of home loans originated in the Country. Combined, the two companies are the biggest buyers of home loans. Those loans are bundled into bonds and sold to investors.

The value of Fannie Mae's assets dropped by 66 percent in the last six months, the company said. As of March 31, it holdings were worth $12.2 billion, down from $35.8 billion in December said it had assets on hand worth $12.2 billion as of March 31. Part of the decline in value is also attributed to new accounting methods.

Looking ahead to the next quarter, Fannie says it has set aside $3.2 billion in anticipation of heavy loan losses.

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