Stocks in the financial sector were getting roughed Monday, with financial-services firm

Marshall & Ilsley

(MI)

and mortgage buyers

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

leading the declines.

Investors sold off shares in M&I after the Wisconsin-based bank said it plans to take a $900 million provision in the second quarter. Originally, the bank thought it would record a charge of $415 million as it continues to trudge through residential loan losses. Shares were down 12%.

Fannie Mae and Freddie Mac were even worse off, tumbling more than 20% at one point after an analyst at Lehman Brothers expressed worries about new accounting requirements that might force both government-formed companies to raise billions of dollars in new capital.

A Friedman Billings Ramsey analyst warned of rising problems with residential construction loans, and that dragged down

SunTrust Bank

(STI) - Get Report

and

Washington Federal

(WFSL)

.

Roughly 20% of Washington Federal's loan portfolio consists of builders' loans, and the stock crumbled 11% to $15.37. SunTrust, which has about 6% of its portfolio in home-construction loans, gave back 10% to $31.38.

Merrill Lynch

(MER)

slipped 2% to $30.39 as

The Wall Street Journal

reported that the brokerage was getting closer to selling its stake in

BlackRock

(BLK) - Get Report

and

Bloomberg

. The move would be an attempt to generate capital in order to offset losses that could be recorded in the second quarter.

The

NYSE Financial Sector

index reflected the negativity as it declined 3% to 5959.56.

However, there was a shining spot for mortgage insurers as

Radian

(RDN) - Get Report

skyrocketed 70% before settling down to a gain of 51.9%. Last Thursday, the insurer announced that it paid out less in claims during the second quarter than expected and on Monday it named a new head of its mortgage unit.

The Philadelphia-based firm was trading at $1.55, a gain of 53 cents. Similarly,

PMI Group

(PMI)

jumped 7.4% to $1.59 as investors hoped to hear that it too, was able to contain its payouts.