Mortgage giant Fannie Mae has posted a $3.55 billion loss for the last quarter of 2007, blaming rising home loan defaults. It set aside $2 billion to cover other bad loans and warned the U.S. housing slump could get worse.

“We are working through the toughest housing and mortgage markets in a generation,” said president and CEO Daniel Mudd. “Our results for 2007 reflect the challenging conditions in the market we serve.”

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