Fannie Mae posts 4th qtly loss,cuts dividend

(Adds CEO quotes, details, background, stock indication, Freddie Mac results)

NEW YORK, Aug 8 (Reuters) - Fannie Mae (FNM.N), the largest U.S. home funding source, on Friday posted its fourth straight quarterly loss as home loan defaults increased and said it would slash its dividend more than 85 percent and take other steps to shore up its capital position.

Just three weeks after U.S. authorities took sweeping measures to support Fannie Mae and smaller rival Freddie Mac (FRE.N), the Washington-based company reported a greater-than-expected loss of $2.3 billion, excluding preferred dividend payments, or $2.54 per share in the second quarter.

That compared with a profit of $1.95 billion, before preferred dividend payments, or $1.86 a share, a year earlier.

Analysts polled by Reuters Estimates expected Fannie Mae to report a loss of 97 cents per share.

The loss, exacerbated by $5.3 billion in credit expenses stemming from the worst housing market since the Great Depression, follows a loss of $2.51 billion, or $2.57 per share, in the first quarter of 2008.

"Volatility and disruptions in the capital markets became even more pronounced in July," Fannie Mae Chief Executive Daniel Mudd said in a statement.

"In addition, credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves," Mudd said. "Given this volatility and the build-up of our reserve, as well as the uncertainties inherent in the U.S. economy and the housing market, we are taking a series of additional actions that reflect our ongoing focus on conserving and enhancing our capital, as well as managing our credit risk through the balance of this cycle."