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More dour investor sentiment for government-sponsored mortgage giants

Fannie Mae

( FNM)and

Freddie Mac

( FRE) weighed on financial stocks Monday.



article over the weekend said that the government expects the Treasury will have to bail out Fannie and Freddie, whose shares have suffered deep losses amid the continuing housing slump. Treasury Secretary Henry Paulson has on a number of occasions said a bailout would not be needed, but the report cited officials that don't see the companies being able to raise enough capital. Fannie plunged 18.8% to $6.42 and Freddie collapsed 20.5% to $4.65.



Financial Sector Index tumbled 159.71 to 6,181.54.

Lehman Brothers

( LEH) shares fell 5.3% to $15.31 after

The Wall Street Journal

suggested the firm will post a loss in the third quarter. The investment bank has been under extreme pressure all year as investors worry about its viability. If the company records another losing quarter then it could need to raise more capital, possibly $6 billion, the paper reported.

Huntington Bancshares


fell 7.8% to $7.35 when it was unable to comfort investors with regards to

Franklin Credit Management


. Franklin, which has ties to Huntington, told the

Securities and Exchange Commission

that it wouldn't file its second-quarter report on time and was expecting a loss. Huntington said it had a restructured agreement and it wouldn't affect the bank, but shareholders weren't buying it.



ticked up early on Monday after reporting it had sold its large holding in



stock, allowing it to show a profit for the second quarter. Unfortunately, net income dropped 20% from the second quarter in the previous year, with loan charge-offs being one of the main problems. Thus the stock lost its steam and lately was losing 4.2% to trade at $41.17.

The highlight of a dismal day for financial stocks was the big rally in

First Marblehead


. The student lending company said

Goldman Sachs


had completed a $132.7 cash infusion it announced in December. GS Capital Partners, a unit of Goldman, has a total investment of $192.5 million and will receive one seat on the firm's board. First Marblehead stock skyrocketed 48.3% to $4.45.


( UB) was jumping 11.7% to $73.18 agreeing to sell the 35% of itself it didn't already own for $3.5 billion to Mitsubishi UFJ, Japan's largest bank. Last week, UnionBanCal, the 25th largest bank in the U.S., rejected an offer by Mitsubishi as too low.