I said that the rally in financials would end badly, and it has. First Freddie reported awful numbers, now it's Fannie's turn:

Fannie Mae, the biggest U.S. buyer of home mortgages, reported Friday a wider-than-expected loss for the second quarter and cut its dividend as the company said the struggling housing market and credit expenses again hurt its performance.

Investors reacted negatively. Shares of Fannie Mae fell 16% at the open, dropping $1.68 to stand at $8.27.

Fannie Mae lost $2.3 billion, or $2.54 a share, a reversal from the $1.9 billion, or $1.86 a share, earned in the year-ago second quarter.

The company, following on the heels of smaller sibling Freddie Mac earlier this week, slashed its quarterly dividend, with the payout now set at five cents a share. Fannie's dividend had previously been 35 cents a share.

With the U.S. housing market under severe pressure, and with questions about the company's viability having dogged it in the past few weeks, markets eagerly awaited the details of Fannie Mae's financial results.

Grim conditions at Fannie and Freddie have prompted the government to ready a bailout, if it becomes needed.

Against this backdrop, Fannie's loss came in much worse than expected. Analysts surveyed by FactSet Research had been looking for a loss of 91 cents a share for the June quarter.

The company reported credit-related expenses of $5.3 billion in the quarter, which more than offset revenue of $4 billion.