Fannie Mae, Freddie Mac Tumble In Wake Of Court Ruling

Fannie Mae and Freddie Mac shares crashed Wednesday after a federal judge threw out a lawsuit that sought to stop the U.S. Treasury from obtaining most of the mortgage companies' profits. The suit is one of several similar cases pending against the Federal National Mortgage Association

and the Federal Home Loan Mortgage Corp

, which were bailed out by the U.S. government in 2008 at a cost of $188 billion. Shares of each of the companies fell more than 40 percent in early trading Wednesday. With Congressional approval, the U.S. Treasury collected a 10 percent dividend each quarter as conservator. But the agreement was changed in 2012 requiring Fannie Mae and Freddie Mac to fork over nearly all profits to the government. An investor-rights organization formed around the issue called Investors Unite, said the court's decision Tuesday was misguided. "We doubt that Congress ever intended for the conservatorship to lead to nationalization" of the two companies "with no compensation for shareholders," the group said Wednesday. But U.S. District Court Judge Royce Lamberth ruled that the plaintiff's "grievance is really with Congress" rather than the U.S. Treasury. Lamberth's action covered suits by investors Perry Capital LLC and Fairholme Funds Inc., managed by Bruce Berkowitz. About 20 similar suits are still pending, and plaintiffs include William Ackman's Pershing Square Capital Management LP.