Mortgage giant Fannie Mae lost more than $29 billion in the third quarter of 2008, according to a report Monday, an immense increase from the the $2.3 billion it lost during the second quarter.

The mortgage finance company reported that it lost $21 billion in fees due to changes in how it uses tax credits and lost $9.2 billion in credit-related losses associated with defaulted mortgage loans.

Fannie Mae and competitor company Freddie Mac, were created by federal government many years ago to provide better liquidity in the mortgage markets and to guarantee home loans, making home-owning more affordable.

The two companies have grown to own or back $5 trillion of U.S. mortgages, and are almost the only companies large enough to bundle home loans for sale as mortgage-backed securities on the secondary money. Investment in those securities provide the money for further mortgage financing all over the country.

And while Freddie and Fannie have always been owned by share-holders, not the government, after reporting staggering losses in recent quarters, the Treasury Department took over both entities on Sept. 7 in order to prevent either company from going under and completely crippling the mortgage market.

Fannie Mae is now in a period of reorganization, being retooled to hold to tight lending standards and concentrate solely on providing liquidity for the bleeding mortgage sector. Yet things are not yet looking up financially for the company.

“If current trends in the housing and financial markets continue or worsen, and we have a significant net loss in the fourth quarter of 2008, we may a negative net worth as of December 31, 2008,” the Fannie statement reported. “If this were to occur we would be required to obtain funding from Treasury.”