Fannie Mae, Freddie Mac stock slumps after lawsuit dismissed Oct 1

[NEW YORK] Shares of mortgage finance companies Fannie Mae and Freddie Mac slumped on Wednesday, after a judge threw out a lawsuit brought by investors in the companies to stop the government from making the companies pay a quarterly dividend to the US Treasury.

The common shares of the companies, which are traded on OTC Markets, were hit hard in premarket trading on heavy volume.

Fannie Mae fell 50 per cent to US$1.33 a share from a close of US$2.69 on Tuesday, while Freddie Mac shares lost 47 per cent to US$1.40 a share. Both companies saw more than 8.5 million shares traded in premarket action.

The preferred shares traded on OTC Markets also saw heavy activity. Freddie Mac's preferred "Z" shares lost 53 per cent to US$4.75 each, after closing at US$10.30 on Tuesday, with 7.8 million shares traded. Fannie Mae's preferred "S" shares were down 51 per cent to US$4.50 from US$9.20 Tuesday on 10.7 million shares.

The lawsuits were filed by investors Perry Capital LLC, Fairholme Funds Inc and Arrowood Indemnity Company. The judge stated that Congress had given the Federal Housing Finance Agency and the Treasury Department the power to take the companies' profits as a provision of the Housing and Economic Recovery Act. - Reuters