October 1, 2014 / 1:27 PM / 3 years ago

Fannie Mae, Freddie Mac stock slumps after lawsuit dismissed

Oct 1 (Reuters) - 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 U.S. 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 percent to $1.33 a share from a close of $2.69 on Tuesday, while Freddie Mac shares lost 47 percent to $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 percent to $4.75 each, after closing at $10.30 on Tuesday, with 7.8 million shares traded. Fannie Mae's preferred "S" shares were down 51 percent to $4.50 from $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. (Reporting by David Gaffen; Editing by Bernadette Baum)

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