Judge Royce Lamberth of the U.S. District Court for the District of Columbia threw out a lawsuit challenging the government's decision to force the companies to sweep their profits into the Treasury.

The over-the-counter common shares of both companies were down by more than a quarter, with Fannie Mae sliding 27 percent to $1.96 and Freddie Mac dropping 26 percent to $1.96. Together, more than 100 million shares changed hands.

The company's preferred shares dropped sharply. Freddie Mac's preferred "Z" shares lost nearly 60 percent to $4.48 on volume of 24 million. Fannie Mae's preferred "S" shares were more than 50 percent lower at $4.31, with about 28 million traded.

The dismissal of the lawsuit, which was filed by Perry Capital LLC, Fairholme Funds Inc. and Arrowood Indemnity Company, dealt a blow to investors hoping to benefit now that the bailed-out companies, the two largest sources of U.S. housing finance, are profitable.

However, other lawsuits challenging the Treasury's decision to change the terms of their bailout are still pending.

The government seized Fannie Mae and Freddie Mac at the height of the financial crisis in 2008 as they teetered on the brink of insolvency.

Initially, they were required to pay a 10 percent dividend on the senior preferred shares the government received. However, the Treasury and their regulator later altered the terms to force them to hand over nearly all their profits.

The Treasury ended up pumping $187.5 billion into the companies, but they have now returned $218.7 billion to taxpayers in the form of dividends for the government's majority stake.