Richard Bove released the first update in a series of reports analyzing Fannie Mae as a potential investment, highlighting strong growth that would be attractive if it weren’t for the underlying political risk that investing in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) entails.

Fannie Mae

Fannie Mae earnings

“Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) reported third quarter earnings of $8.7 billion. This was 4.8x greater than the profits reported in the third quarter of 2012. It was the seventh consecutive quarter of positive earnings,” wrote Bove, who is vice president of equity research at Rafferty Capital Markets LLC. He also pointed out that net interest income was up 5% annually, non-interest income went from negative $600 million to positive $1.8 billion, and even though non-interest expenses went up, they were completely overshadowed by a $1 billion foreclosed expenses benefit.

This would be a compelling argument in favor of investing in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), if it weren’t a government controlled company that has no intention of paying out dividends to private shareholders and is supposed to draw its net value down to zero by 2018, assuming it is scrapped by Congress before then. Fannie Mae and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have come under fire for their role in the housing crisis, and while Republicans have led the attack, Democrats haven’t shown much interest in defending the two institutions.

Bove talks about political risks

Bove has said that he will continue releasing articles with more detailed information, but he needs to address how shareholders will actually get value out of the company. He dismissed the political risk in his first article almost out of hand, saying that the government’s current stance is illegal and won’t stand while Congressional bills scrapping it won’t pass. He may be right, but unless he can persuade other investors of it they aren’t going to take a position no matter how good the fundamentals are.

It’s only been two days since Bove first floated the idea of buying Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), but the stock hasn’t budged so he hasn’t made a splash yet. For what it’s worth, Bove hasn’t even said that he necessarily recommends the stock and seems to be approaching the company almost as an intellectual exercise.