Financial stocks suffered a furiously traded bloodbath Tuesday afternoon following Freddie Mac's ( FRE) announcement of an enormous third-quarter loss.

Freddie shares tanked by more than 28%, and fellow mortgage investor Fannie Mae ( FNM) by nearly 25%, after the former reported a loss of $2 billion, or $3.29 a share. That's nearly triple the amount of last year's loss, which panned out at $1.17 a share.

In light of its dire cash levels, Freddie also said it might cut its dividend in half next quarter and that it's considering "very near term capital raising alternatives" with help from Goldman Sachs ( GS) and Lehman Brothers ( LEH).

Freddie slid $10.76 to $26.74 as Fannie traded down $9.33 to $28.25.

A Fox-Pitt analyst meanwhile argued that, if the foundering Freddie and Fannie can't purchase Countrywide's ( CFC) loans, the mortgage lender's viability of remaining in business will be placed in jeopardy. The analyst cut Countrywide to in line from outperform. Shares finished down 2.7% to $10.28.

Citigroup ( C) saw extremely heavy trading after a Deutsche Bank analyst said that the banking giant's foul-ups, as they regard to risk management and disclosure of subprime-related writedowns, could have opened up a can of regulatory worms. The analyst kept his sell rating on the bank, per the Associated Press, believing that a regulatory probe could be launched on Citi and that new restrictions might limit activities such as buyout pursuits.

Last month, Citi reported massive third-quarter writedowns, which was followed early this month by news that it expects to take a hit of $8 billion to $11 billion more in the current quarter. Shares sank 1.9% to $31.40.

Impac Mortgage ( IMH) continued tumbling a day after the mortgage investor said it will likely post a widened third-quarter loss, vs. last year, and that it will delay release of those results. The Irvine, Calif., company's quarterly filing should post in mid-December. Shares were sliding 25.4% to 50 cents.

Also losing substantial ground was E*Trade ( ETFC), which continued backing off from last week's rebound after shares took a precipitous Monday drop on a downgrade and word of expected further writedowns. Shares of the online broker closed down 19.3%.

Among few financial gainers was Knight Capital ( NITE), another online broker that climbed 6% to $13.26 on a Keefe Bruyette upgrade to market perform from underperform. The analyst said recent bad news has been sufficiently baked into the share price, and that higher market volatility should be good for business.

In another positive analyst call, B. Riley & Co. upped Puerto Rico's Oriental Financial ( OFG) to buy from neutral. Shares of the bank hiked up 10% at $12.23.

And Downey Financial ( DSL) continued rising a day after activist investor Gerald J. Ford disclosed buying a 7% stake in the California-based bank through his Hilltop Holdings ( HTH) firm. In the associated regulatory filing, Hilltop said it has "identified Downey as a potential candidate for an acquisition or strategic transaction."

Downey extended yesterday's surge, adding 94 cents, or 2.8%, to close at $34.52.

More broadly, action was very jittery as broad sector trackers booked early gains, then careened deep into the red, before making a last-minute recovery to pare most of those losses. The NYSE Financial Sector Index and the KBW Bank Index were both down around 0.4%.

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